Key facts
- The average 30-year fixed-rate mortgage rose to 7.40% for the week ending Oct. 8.
- This marks the highest mortgage rate in three years.
- Rising inflation fears, a global bond selloff, and concerns about government deficits are driving mortgage rates higher.
- Pending home sales have fallen year over year, and sellers are cutting prices.
- Active housing listings have increased by 6.7% year over year nationally.
- Fed Gov. Christopher Waller indicated that more interest rate hikes may be needed to combat inflation.
The average rate for a 30-year fixed mortgage has climbed to 7.40% for the week ending October 8, reaching a fresh three-year high. This surge is attributed to a combination of inflation fears, a global bond selloff, and growing concerns over government deficits.
This increase in borrowing costs is putting significant pressure on housing affordability, with pending home sales having fallen year over year in August and September even before rates surpassed 7%. Sellers have responded by cutting prices, a trend not seen in four years. Nationally, active housing listings have risen by 6.7% compared to a year ago, indicating a buildup of inventory as buyer demand cools due to financing challenges. However, new listings saw a 4.1% year-over-year decrease last week, suggesting some sellers are holding back.
Federal Reserve Governor Christopher Waller indicated on Thursday that further interest rate hikes may be necessary to bring inflation down to the central bank's 2% target. While he noted that hikes do not need to occur at consecutive meetings, they should be implemented within an acceptable timeframe. Financial markets are pricing in a high probability that the Federal Reserve will hold interest rates steady at its next Federal Open Market Committee meeting this month, with a rate hike in December considered more likely.
For buyers who can purchase with cash, conditions are favorable, with prices down 1.4% year over year and inventory up 5.4%. However, for the average buyer relying on financing, the elevated rates are a significant deterrent. Realtor.com senior economist Joel Berner noted that while current rates may seem daunting, strategic planning, such as accounting for potential rate fluctuations and improving credit scores, can help manage the home search.