Mortgage rates rise as stubborn inflation persists

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Mortgage rates rebounded this week after a brief respite from summer home buyers as the Federal Reserve grappled with soaring inflation.

Inflation continued to climb to a four-year high in June, according to the newly released consumer price index, despite the Federal Reserve’s efforts to curb price increases with a series of aggressive interest rate hikes. Mortgage rates rebounded after falling by half a percentage point earlier this month on the news.

The average rate on a 30-year fixed-rate mortgage rose to 5.51% in the week to July 14, according to Freddie Mac. Rates on both fixed-rate and adjustable-rate mortgages spiked this week and remain much higher than they were this time last year. Here are the current mortgage rates:

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30-year fixed: 5.51% plus 0.8 points (5.3% a week ago, 2.88% a year ago).
15-year fixed: 4.67% plus 0.8 points (4.45% a week ago, 2.22% a year ago).
5/1 Year Adjustable: 4.35% plus 0.2 points (4.19% a week ago, 2.47% a year ago).

Current Mortgage Rates

Higher mortgage rates are widely expected to slow home price growth, but that hasn’t really had an impact yet. Fannie Mae reported that home prices rose 19.4% annually in the second quarter of 2022, still at an all-time high. Doug Duncan, chief economist at Fannie Mae, said in a release that price growth remains strong due to low housing inventory — although he expects future appreciation to slow as rising interest rates dampen demand for home purchases .

The housing stock shortage is a complex problem that needs to be addressed because it is caused by chronic underproduction. National housing production is lagging by 3.79 million units, according to a new study by Up for Growth, an advocacy group focused on increasing housing supply and affordability.

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As the housing shortage continues to affect consumers across the country, the federal government is stepping in to address the problem. Last month, the U.S. Department of Housing and Urban Development launched a new program called “Our Way Home,” which aims to connect communities with the resources needed to create and maintain affordable housing. The government was commissioned to develop a plan to close the housing supply gap over the next five years.

Metric of the Week: “Ride Until You Qualify”

Soaring mortgage rates — combined with stubbornly high home prices — have created an affordability crisis for homebuyers this summer. As mentioned in last week’s column, today’s buyers are forced to choose between paying a higher monthly mortgage or reducing their buying budget.

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As borrowers feel their mortgage affordability declines, many are expanding their search to lower cost-of-living areas, adopting an aptly named “drive-until-you-eligible” approach. Essentially, if you can’t find an affordable home in the city where you live or work, you’ll have to move to the suburbs further down the highway.

This is not necessarily a new phenomenon. Homebuyers have flocked to cheaper suburbs for decades when they couldn’t afford a home within the city limits. However, if you drive until you qualify, there is an additional cost: a commute to work. While it’s not uncommon to drive an hour to the nearest town, long commutes can take a financial toll when gasoline prices are up about $1.50 year over year, according to the AAA. Not to mention that every time you have to go to work, you may have to sacrifice two precious hours of your time.

However, Realtor.com economic research manager George Ratiu said there may be other options for today’s homebuyers. He suggested in a recent report that if buyers could wait a few months, they would find a cheaper housing market, “especially as we head into the fall and winter.”

“We’re seeing a much higher volume of new products,” Ratiu said. “For me, it’s really encouraging because it’s an ingredient that’s been missing from the market over the past few years.”

For those who can wait, interest rate relief could be on the horizon, although it’s hard to say where mortgage rates will be in the coming months. If interest rates remain high, that will continue to put upward pressure on new mortgage payments even as house prices cool.

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