Average mortgage rate hits highest level since June

The average 30-year fixed mortgage rate took a steep turn upward this week, hitting 5.55% for the week ending Thursday, which was the highest it has been since the end of June.

The increase compared with last week, when the average was 5.13%, was the second-largest jump in rates since 2013.

Rates have declined some since hitting a recent peak of 5.81% in mid-June but are still significantly higher than they were a year ago, when the average 30-year mortgage rate was 2.87%.

Mortgage rates typically move in tandem with the 10-year U.S. Treasury yield, which rose to its highest level in a month earlier this week.Yields rise when bond prices fall. Investors in the bond market are monitoring the next steps of the Federal Reserve for indications on the direction of the economy.

Persistently high inflation could push mortgage rates higher. But if further moves by the Fed to tame inflation, such as a larger-than-expected increase to its benchmark rate, dim investors' outlook on the U.S. economy, that could drive down mortgage rates. Jerome Powell, chair of the Federal Reserve, will deliver closely watched remarks Friday at an economic policy symposium in Jackson Hole, Wyoming.

 The Fed's rate hikes to slow down rising consumer prices have become more predictable and less likely to jolt the mortgage market, Nadia Evangelou, director of forecasting at the National Association of Realtors, wrote in a commentary published Wednesday. 

 "It seems that mortgage rates have already priced in the upcoming Fed rate hikes," she wrote. "Therefore mortgage rates may remain below 6% for the remainder of the year. 

Higher rates have led to a slowdown in sales on Long Island and around the country, but local prices have so far not been affected. The number of home sales that closed last month was nearly 23% lower than in July 2021. The median price among sales in Nassau County matched a record high of $720,000 and hit a record $575,000 in Suffolk County.

“The combination of higher mortgage rates and the slowdown in economic growth is weighing on the housing market,” said Sam Khater, Freddie Mac’s chief economist said in a statement. “Home sales continue to decline, prices are moderating, and consumer confidence is low. But, amid waning demand, there are still potential homebuyers on the sidelines waiting to jump back into the market.”

U.S. buyers have less competition than last year. Mortgage applications sunk to their lowest level since 2000 this week, according to the Mortgage Bankers Association. The association’s index that tracks mortgage applications tied to purchases was 21% lower than at this time a year ago. Its Refinance Index was 83% lower than it was this week in August 2021.  

But buyers are also facing higher monthly payments than their peers who bought a house last year. The monthly payment toward principal and interest for a borrower with a 30-year, $500,000 mortgage is $781 higher with a mortgage rate of 5.55% compared with the 2.87% average rate from a year ago. That doesn't include costs for taxes and insurance, which vary by house and community.

The rise in rates this spring forced Long Island homebuyers to reset their expectations for what they could afford, said Quentin Hardy, market leader at Movement Mortgage, a direct lender in Huntington.

“As the rates went up, they were literally losing buying power on a weekly basis,” Hardy said. “Some people had to change what they were looking for, change their budget or even change neighborhoods to still be successful.”

Hardy said he is still advising borrowers to buy, rather than wait and see what happens to the housing market, because he doesn’t believe there will be a dramatic drop in prices. He said that belief is based on the low inventory of houses for sale and strong financial position of U.S. homeowners. There are still only about half as many houses on the market on Long Island as there were during the summer before the pandemic, and U.S. homeowners had a record $27.8 trillion in equity in their homes in the first quarter, the Federal Reserve announced in June.

That stands in contrast to the subprime mortgage crisis of 2007-08 when a wave of foreclosures flooded the market, bringing down prices.

“We have record-high equity ...We have record-low inventory." Hardy said. “Those things are the opposite of the last crash, not even close or similar.”

By Jonathan LaMantia

jonathan.lamantia@newsday.com@jonlamantia

Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.