According to Freddie Mac, the 30-year fixed-rate mortgage averaged 5.13% for the week ended August 18, up from 5.22% the week before. Despite the recent decline, rates are still significantly higher than they were this time last year when the 30-year was 2.86%.
“Inflation appears to have peaked, halting the rapid rise in mortgage rates that the housing market saw earlier this year,” said Sam Khater, Freddie Mac’s chief economist.
Higher mortgage rates have hit the housing market this summer. In addition to a sharp drop in new and existing home sales, fewer people are applying for mortgages.
“The market continues to absorb the cumulative impact of the large price and interest rate hikes that have caused affordability to fall,” he said. “As a result, buying demand will likely continue to fall later in the year, supply will increase slightly and home price growth will slow.”
According to the Mortgage Bankers Association, mortgage application activity last week was lower than the previous week and the total number of applications fell to its lowest level since 2000.
“Home purchase applications continued to be held back by rapidly dwindling demand as high mortgage rates, difficult affordability and a gloomy economic outlook held buyers back,” said Joel Kan, associate vice president of economic and industry forecasts at MBA.
However, if home price growth slows more significantly and mortgage rates fall, buying activity could pick up later in the year, he said.
Still, affordability remains a challenge for many prospective home buyers, especially compared to the cost of financing a home over the past year.
A year ago, a buyer who invested 20% on a $390,000 home and financed the rest with a 30-year fixed-rate mortgage at an average interest rate of 2.86% had a monthly mortgage payment of $1,292, according to Freddie’s calculations Mac.
Today, a homeowner buying a home for the same price at an average rate of 5.13% would pay $1,700 one month principal and interest. That’s almost $408 more every month.