Borrowing costs for home loans have reached a 16-year high, with the interest rate on a conventional 30-year mortgage reaching 6.7% on Wednesday, according to Freddie Mac.
Since the beginning of 2022, mortgage rates have more than doubled. According to Oxford Economics, mortgage rates are now just above 7% when measured by their “effective” rate, which takes into account the compounding period for a loan and thus provides a more accurate picture of the cost to homebuyers.
Depending on the size of the loan, a percentage point increase in a mortgage rate can add hundreds of dollars to a property’s monthly payments. These significantly higher prices are chilling the housing market. According to the Mortgage Bankers Association, the number of mortgage loan applications fell by 14% during the final week of September.
Some relief for buyers may be on the way, as economists predict that home prices are beginning to fall and will likely continue to fall in certain real estate markets. Sacramento, California, Salt Lake City, Utah, and Seattle, Washington have seen the steepest drops in home prices.
Economists expect mortgage rates to remain high as the Federal Reserve continues to raise interest rates in an effort to cool inflation, including two more hikes by the end of the year.
What will fixed mortgage rates be in 2024?
Following an assessment of the economy, they expect to raise the interest rate to 2% by mid-2024. Fixed-rate five-year mortgage rates are expected to rise to 5% by the end of this decade, up from 4.25% at the end of this year.