Mortgage rates have continued their upward trend for the fifth consecutive week, inching closer to 8%, according to Freddie Mac. The average rate for a fixed 30-year mortgage now stands at 7.57%, marking the highest level since late 2000.
Market and geopolitical uncertainty are major factors contributing to this increase, as stated by Sam Khater, Freddie Mac's chief economist. The combination of rising home prices and mortgage rates has caused many potential homebuyers to be deterred by the higher costs involved. However, some groups, such as those who previously faced stiff competition during the early years of the pandemic or individuals relocating to more affordable areas, are still active in the housing market.
Another group that remains active is buyers utilizing adjustable-rate mortgages (ARMs) to counteract the impact of high rates. The Mortgage Bankers Association reported a 15% increase in applications for ARMs compared to the previous week, resulting in a general uptick in overall mortgage applications.
According to Mortgage Bankers data, the average contract interest rate for 5/1 ARMs was 6.33% last week, significantly lower than the 7.67% rate reported for 30-year fixed mortgages.
Unfortunately, mortgage rates may continue to worsen before any signs of improvement. The 10-year Treasury yield, closely linked to mortgage rates, was rising in response to September's inflation data. Lawrence Yun, the chief economist at the National Association of Realtors, has previously warned that mortgage rates could reach 8% in the near future and maintain that level until year-end.