Mortgage rates soar as stubborn inflation persists | Mortgages and advice

Inflation continued to climb to its highest level in four decades in June, according to the new publication Consumer price index, despite efforts by the Federal Reserve to rein in soaring prices with a series of aggressive rate hikes. On the heels of this news, mortgage rates rebounded after falling half a percentage point earlier this month.

The average 30-year fixed mortgage rate rebounded to 5.51% for the week of July 14, according to Freddie Mac. Interest rates jumped this week for both fixed and adjustable rate mortgages, and they remain much higher than they were this time last year. Here are the current mortgage rates:

  • Fixed 30 years: 5.51% with 0.8 point (compared to 5.3% a week ago, compared to 2.88% a year ago).
  • 15-year fixed: 4.67% with 0.8 points (compared to 4.45% a week ago, compared to 2.22% a year ago).
  • 5/1 year reviewable: 4.35% with 0.2 points (compared to 4.19% a week ago, compared to 2.47% a year ago).

Erika Giovanni

“Mortgage rates are volatile as economic growth slows due to fiscal and monetary headwinds. With rates the highest in over a decade, house prices at elevated levels and inflation continuing to have a impact on consumers, affordability remains the number one barrier to homeownership for many Americans.”

– Sam Khater, chief economist at Freddie Mac, in a July 14 statement

Rising mortgage interest rates are widely expected to slow home price appreciation, but this has yet to begin. Home prices rose 19.4% annually in the second quarter of 2022, Fannie Mae reports, which remains at a near-record level. Fannie Mae chief economist Doug Duncan says in a press release that price growth remains strong due to low housing stock – although he expects appreciation to moderate going forward , as rising rates dampen demand for home purchases.

The housing shortage is a complicated problem to solve, as it is fueled by long-standing underproduction. National housing production lags behind by 3.79 million units, according to a new study by Ready for growthan advocacy group focused on increasing housing supply and affordability.

Housing underproduction is a problem in 47 states and the District of Columbia, with 169 metro areas lacking sufficient housing. The crisis is felt the most in California, with a shortfall of 978,000 homes to be built. It is also important in other western states, such as Oregon, Washington, Utah and Colorado.

Empirical housing underproduction by state in 2019. Three states (Wyoming, North Dakota, and West Virginia) experienced no underproduction.Erika Giovanni

As the housing shortage continues to impact consumers nationwide, the federal government is stepping in to address the issue. Last month, the US Department of Housing and Urban Development launched a new initiative, Our way home, to connect communities to the resources they need to produce and preserve affordable housing. The administration has been tasked with creating a plan to close the housing supply gap over the next five years.

Indicator of the week: “Drive until you qualify”

Rising mortgage rates, coupled with stubbornly high home prices, have sparked an affordability crisis for homebuyers this summer. As highlighted in last week’s column, buyers today are forced to make a choice between locking in higher monthly mortgage payments or cutting back on their buying budget.

As borrowers feel the pinch of diminishing mortgage affordability, many are broadening their search area to lower the cost of living in an aptly named, “drive until you qualify” approach. Essentially, if you can’t find a reasonably priced home in the city where you live or work, you have to settle for moving to an outlying suburb further down the highway.

This is not necessarily a new phenomenon. For decades, homebuyers flocked to the cheaper suburbs when they couldn’t afford a home within the city limits. But when you drive until you qualify, there’s an added expense: the commute. While it’s not uncommon to drive an hour to the nearest town, a long drive can be a financial drain at a time when gasoline prices have risen by around $1.50 a gallon. year to year, depending on AAA. Not to mention that you may have to sacrifice two hours of your precious time every time you have to go to work.

However, there might be an alternative option for today’s homebuyers, says George Ratiu, head of economic research at Realtor.com. He suggests in a recent report that buyers will find a more favorable housing market if they can wait a few months, “especially as fall and winter approach.”

“We are seeing new listings coming to market in much greater numbers,” Ratiu said. “And for me, that’s really encouraging. Because that’s the missing ingredient on the market in recent years.”

Price relief may be on the way for those who can wait, although it’s hard to say where mortgage rates will be in the months ahead. If rates remain high, this will continue to put upward pressure on new mortgage payments, even if house prices slow.

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