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Originally Published: Sep 22, 2022
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Originally Published: Sep 22, 2022 Last Updated: Sep 22, 2022 5 min read
Current Mortgage Rates
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Mortgage rates jumped dramatically again this week.

According to Freddie Mac, the average rate on 30-year fixed-rate mortgage was 6.29% during the week ending September 22.

It was the second week in a row that rates were above 6% and the fifth consecutive week of increases. The closely watched 30-year rate is now more than double the level seen at the start of this year and mortgage rates have not been this high since October 2008.

Other loan categories saw higher rates as well. The average rate on a 15-year fixed-rate mortgage increased to 5.44% while the 5/1 adjustable-rate mortgage averaged 4.97%.

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How the Fed's rate increase will affect mortgage rates

On Wednesday, the Federal Reserve announced a 0.75 percentage point increase to the federal funds rate, bringing the target range up to 3.25%. It was the third increase of this size and the fifth hike this year. The fed funds rate has not been this high since early 2008 and the central bank said additional rate hikes would likely be "appropriate" to bring inflation down.

The federal funds rate is the interest rate banks charge each other for overnight loans. While the Fed does not directly set mortgage rates, the federal funds rate affects U.S. Treasuries and the overall cost of borrowing, which influence mortgage rates.

“The housing market continues to face headwinds as mortgage rates increase again this week, following the 10-year Treasury yield’s jump to its highest level since 2011,” noted Sam Khater, Freddie Mac’s chief economist, in a statement.

The rate hike was in line with what most Fed watchers expected. Mortgage companies had already started pricing the increase into rates. However, borrowers may see rates increasing further over the next few months as the effects of the rate hike kick in.

In addition to rate hikes, the Fed is speeding up the reduction in its balance sheet, letting about $60 billion in Treasuries and $35 billion in mortgage-backed securities mature and roll off. The Fed started purchasing billions in treasuries and MBS at the start of the coronavirus pandemic to keep money flowing through the economy.

These actions "will cause mortgage rates to continue rising until inflation shows signs of more significant moderation," said George Ratiu, manager of economic research at Realtor.com, in a statement.

The housing market cooldown continues

Rising mortgage rates continue to have a cooling effect on the housing market. Existing home sales dipped 0.4% between July and August to a seasonally adjusted annual rate of 4.80 million homes, according to the National Association of Realtors.

Although the month-over-month change was slight, sales decreased by nearly 20% compared to August last year, when sales were at an annual rate of 5.99 million homes.

"The softness in home sales reflects this year's escalating mortgage rates," said Lawrence Yun, chief economist at NAR, in a press release announcing the sales numbers.

Affordability remains the biggest issue for potential homebuyers this year. While home price growth has slowed, the median sales price was still $389,500 in August, a 7.7% increase compared to a year ago. High prices combined with higher rates are forcing many potential homebuyers to stay on the sidelines.

Buyers aren't the only ones affected by rising rates either. Homeowners who locked in mortgage rates below 5% over the last few years and who may have planned on selling this year are taking a step back as well. Many are reluctant to trade a low interest rate for today's plus 6% rates.

As a result, new home listings have been declining and the total number of unsold existing homes for sale decreased by 1.5% between July and August, according to NAR.

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