Is 7% the New Normal for Mortgage Rates?

The interest rate for a 30-year mortgage rose to 7.18% this week, Freddie Mac reported Thursday, marking the fifth consecutive week above 7%. Home buyers purchasing a typical single-family existing home at the median price of $412,300 should expect a monthly mortgage payment of $2,234, says Jessica Lautz, deputy chief economist at the National Association of REALTORS®.

A year ago, when rates crossed the 6% mark for the first time since 2008, monthly payments on a home priced at $400,000 averaged $1,923. Today’s home buyers at the same $400,000 level are facing monthly mortgage payments about $245 higher, Lautz says. They’re also up against higher home prices and steep competition for a limited number of homes on the market.

NAR’s Housing Affordability Index last week hit its lowest point since July 1986. “Rate hikes have eroded housing affordability and wealth gains for potential buyers wanting to enter the market,” Lautz says.

The Federal Reserve meets next week to determine whether it will again hike its short-term benchmark rate, which could influence the direction of mortgage rates in the coming weeks. This week’s consumer price inflation report, which reflects August data, showed an uptick in the inflation rate to 3.7%. That’s still shy of the Fed’s 2% target.

“The reacceleration of inflation and strength in the economy is keeping the mortgage rates elevated,” says Sam Khater, Freddie Mac’s chief economist.

For home buyers faced with higher rates, Khater points to a Freddie Mac study showing that home purchasers who shop around and gather quotes for mortgage rates could potentially save between $600 to $1,200 annually on their loan. (Here are six ways your buyers can save on their mortgage.)

Freddie Mac reports the following national averages with mortgage rates for the week ending Sept. 14:

• 30-year fixed-rate mortgages: averaged 7.18%, rising from last week’s 7.12% average. A year ago, 30-year rates averaged 6.02%.
• 15-year fixed-rate mortgages: averaged 6.51%, falling from last week’s 6.52% average. A year ago, 15-year rates averaged 5.21%.