Freddie Mac cites strong job market as a key factor in unusual rate swings
Mortgage rates continue to climb, fueled by a resilient job market and economic momentum, according to Freddie Mac’s latest report.
The 30-year fixed-rate mortgage (FRM) averaged 6.54% as of October 24, up from 6.44% the previous week. A year ago, rates were significantly higher, with the 30-year FRM at 7.79%. The 15-year FRM also saw an increase, averaging 5.71%, compared to 5.63% the prior week.
Freddie Mac chief economist Sam Khater explained that economic strength is contributing to “higher-than-normal volatility in mortgage rates.”
“The continued strength in the economy drove mortgage rates higher once again this week,” Khater said in the report. “Over the last few years, there has been a tension between downbeat economic narrative and incoming economic data stronger than that narrative. This has led to higher-than-normal volatility in mortgage rates, despite a strengthening economy.”
The ongoing rate increases, combined with high home prices, are posing challenges for potential homebuyers, according to Holden Lewis, mortgage expert at NerdWallet.
“Mortgage rates have been rising steadily for a month as the job market remains robust. Meanwhile, the median home price has exceeded $400,000 for six straight months,” Lewis said. “Rising mortgage rates and high home prices are ganging up on would-be homebuyers who struggle to find homes they can afford.”
This pressure has contributed to the slowest pace of home sales in nearly 14 years, with existing-home sales slipping 1% in September to an annual rate of 3.84 million, according to the National Association of Realtors (NAR).
Meanwhile, the Census Bureau reported a 4.1% rise in new single-family home sales month-over-month, up 6.3% from last year, indicating that some buyers are willing to pay for newly built homes that offer greater flexibility on pricing and availability.
“Home sales have been essentially stuck at around a four-million-unit pace for the past 12 months, but factors usually associated with higher home sales are developing,” said NAR chief economist Lawrence Yun. “There are more inventory choices for consumers, lower mortgage rates than a year ago and continued job additions to the economy. Perhaps, some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election.”
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Inventory climbed to 1.39 million units at the end of September, up 1.5% from August and 23% year-over-year.
“More inventory is certainly good news for home buyers as it gives consumers more properties to view before making a decision,” Yun added. “However, the inventory of distressed properties is minimal because the mortgage delinquency rate remains very low.”
On a positive note for buyers, moderating home prices could improve housing affordability. With wage growth now outpacing home price increases, Yun suggested that affordability may gradually improve.
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