U.S. 30-Year Mortgage Rate Rises to 7.28%

The Wall Street Journal's editorial section reported last week that the average 30-year mortgage rate hit 7.28%, a three-year high and more than double the average from 2020 to 2021. The headline praised the higher mortgage rates, arguing that it signifies a return to normalcy in the economy and suggests that home prices will become more affordable in the future.

The commentary is divided into two parts. Rising rates suppress demand, particularly from investors; high rates and prices, combined with slow rent growth, make housing less attractive as an investment. The National Association of Realtors stated that non-primary residences accounted for 15% of transactions in August, down from 21% a year ago. In the second quarter, only 4% of new loans guaranteed by Freddie Mac were for investment properties and second homes, compared to about 8% from 2019 to 2023.

The same article described supply as giving buyers more negotiating power. The association noted that there are plenty of homes for sale, allowing buyers to negotiate prices, resulting in a slowdown in the rate of price increases. The commentary stated that wage growth is about twice that of home prices, and if this continues, Americans will be able to save more for down payments, making home buying more affordable. It also acknowledged that competition in credit itself could push mortgage rates higher.

Data terminal Barchart shared this commentary, stating that it is confident that homebuyers are celebrating the higher mortgage rates, accompanied by a speechless emoji. The post did not provide a new rate series, referring instead to this "praise."

The news section had a different tone. On September 15, Freddie Mac's 30-year average was 6.76%, while Mortgage News Daily's daily rate had surpassed 7%. On September 24, Freddie Mac's reading reached 7.03%, marking the first time it has been above 7% since early last year. Michael Fratantoni, chief economist at the Mortgage Bankers Association, said this jump could cause potential buyers to pause, possibly leading them not to sign contracts or apply for loans.

The median price of existing homes nationwide in August was $429,100, a 1.6% increase year-on-year, setting an August record. Home prices have risen more than 50% since 2019. The median down payment in January was $23,053, rising to $27,166 in August, with the down payment ratio increasing from 12.8% to 13.8%. There are currently 1.1 million existing homes for sale, expected to rise to 1.6 million this year, the highest since before the pandemic. Rates had dipped below 6% in February, but the spring recovery expectations were subsequently overshadowed by the 7% mark.

Buyers are still homeowners paying monthly, while sellers are homeowners locked into old low rates and unwilling to list their homes. The event is driven by the 10-year Treasury yield approaching 5%, which influences mortgage rates. Funds are being withdrawn from investors and second homes, benefiting those who can increase their down payment or use adjustable rates or cash, while ordinary buyers, whose down payments are stuck at 10% to 15% and whose monthly payments are raised by the 7.28% rate, are under pressure. The commentary calls this normalization, while the terminal suggests that buyers will not celebrate.

Source: Public Information