Mortgage rates hit 6% and applications drop again

Borrowing cost twice what it was a year ago, sidelining buyers

Mortgage rates hit 6%
(Illustration by The Real Deal with Getty)

Halloween’s not until next month, but home buyers are already in for a fright: The average rate on a 30-year fixed mortgage has hit 6 percent for the first time since 2008.

That’s about double what it was a year ago, according to data from the Mortgage Bankers Association, and portends a continued slowdown in the housing market.

“Higher mortgage rates have pushed refinance activity down more than 80 percent from last year and have contributed to more homebuyers staying on the sidelines,” Joel Kan, the trade group’s chief forecaster, said in a statement.

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Refinancing accounted for 30 percent of mortgage applications last week. The adjustable-rate mortgage share of activity increased to 9 percent of total applications, as buyers looked for lower initial rates.

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The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances — greater than $647,200 — increased to 5.56 percent.

And the average contract interest rate for 15-year fixed-rate mortgages increased to 5.30 percent.

Mortgage rates hit record lows during the pandemic, contributing to a frenzied housing market, as buyers and sellers migrated across the country. However, in an attempt to slow inflation, the Fed started hiking interest rates earlier this year. As a result, mortgage rates hit levels not seen in years and buyers were pushed out of the market.

In June, rates flirted with 6 percent, before falling back toward 5 percent. Prior to the pandemic rates had hovered below 4 percent; however, after an initial spike in March 2020, the rate mostly remained between 2 and 3 percent until the end of last year. In a more distant recollection, rates have historically gone as far up as the teens.

Still, not every Fed hike has resulted in a mortgage rate rise. In August, after the Fed raised its benchmark rate by a historic 75 basis points, mortgage rates dropped.