Mortgage Interest Rates Forecast

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Mortgage rates today: Friday, October 7, 2022

On Friday, Oct. 7, 2022, the average interest rate on a 30-year fixed-rate mortgage rose seven basis points to 6.708% APR. The average rate on a 15-year fixed-rate mortgage jumped 19 basis points to 5.978% APR, and the average rate on a 5-year adjustable-rate mortgage went up three basis points to 5.727% APR, according to rates provided to NerdWallet by Zillow. The 30-year fixed-rate mortgage is 14 basis points higher than one week ago and 370 basis points higher than one year ago. A basis point is one one-hundredth of one percent. Rates are expressed as an annual percentage rate, or APR.

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Mortgage rates this week

Mortgage rates experienced day-over-day volatility in the week ending Oct. 6, with rates for fixed-rate loans falling slightly and the five-year adjustable rate heading a bit higher.

  • The 30-year fixed-rate mortgage averaged 6.6% APR, down four basis points from the previous week's average.

  • The 15-year fixed-rate mortgage averaged 5.76% APR, down 11 basis points from the previous week's average.

  • The five-year adjustable-rate mortgage averaged 5.65% APR, up 11 basis points from the previous week's average.

You may have seen headlines warning of falling home prices. While home prices are indeed dropping, affordability — or home prices compared with local incomes — remains so constrained that buyers may not see much benefit.

July and August 2022 saw the greatest single-month price declines since January 2009, according to data analytics firm Black Knight. But even with those declines, home prices remain up 12.1% year over year. It's less like a bubble bursting and more like a Mylar balloon a week or two after the birthday it celebrated — it's no longer stuck to the ceiling, but it's still hovering far above the floor.

Markets that have seen the biggest drops, like San Francisco; San Jose, California; and Seattle, nonetheless remain among the least affordable in the country, according to Black Knight. The across-the-board, double-digit price increase rates that we saw earlier this year are gone. But in many metros, the housing market is far from cool.

If you're hoping to buy a home, the good news is that prices may have peaked. The bad news, sadly, is almost everything else: The number of homes for sale is persistently low and multiple offers remain the norm. There's nothing wrong with you if you're feeling deflated — this is still a rough housing market.

October mortgage rates forecast

Mortgage interest rates are likely to keep on rising in October. Projecting the trend for mortgage rates this month isn't particularly tricky, but it doesn't look like there'll be any treats, either.

While we don't face the specter of another Federal Reserve meeting until November, the central bankers' 75-basis-point rate increase in late September, coupled with their latest round of predictions for interest rates, should be more than enough to spook mortgage lenders. What's less clear is whether lenders will front-load the anticipated increases by rapidly ramping up rates in October or if we'll see a more gradual ascent.

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Federal Reserve actions make mortgage rates jump

The Federal Reserve may not yet have scared inflation into submission, but it has undoubtedly gotten a reaction from the housing market. Mortgage interest rates have increased ahead of each Fed meeting in 2022, trending upward even before the first increase to the federal funds rate was announced in March.

The run-up to the September meeting saw a significant jump, with 30-year fixed-rate mortgages surpassing and then staying above 6%. Arguably, this was mortgage lenders getting out in front of the Fed. An aggressive 75-basis-point increase was expected, and some had even considered a 100-basis-point hike a real possibility.

In addition to its usual announcement, the Federal Reserve issued a Summary of Economic Projections after the September meeting. These predictions come out four times a year; the last one was back in June. The strategy grew considerably more aggressive over the summer, forecasting that the federal funds rate — currently 3% to 3.25% — will hit roughly 4.4% by year's end and go even higher in 2023. In June, the predicted 2022 year-end number was 3.4%, which two more rounds of rate hikes in November and December will easily pass.

Though mortgage interest rates aren't directly tied to the federal funds rate, increases to that rate make all types of borrowing — including getting a home loan — more expensive.

Affordability worsening even as prices start to fall

This rising rate environment is sending chills down the spines of many potential home buyers, even as home prices show signs of softening. Though year-over-year increases continue, as of August, the median existing home price has dropped for two months running, according to the National Association of Realtors. However, the additional interest financed buyers have to pay potentially wipes out any benefit from lower prices.

To borrow $300,000 at a 6% interest rate, a buyer would be looking at monthly principal and interest payments of almost $1,800. At the beginning of 2022, when interest rates were around 3.5%, monthly payments on a $300,000 mortgage would have been just under $1,350. The same loan would now cost roughly $450 more per month.

The rising cost of borrowing is pushing down demand, as the Fed had hoped, creating slightly less competition in some markets. There's still a shortage of available homes. However, if these trends continue, we could see a housing market that favors buyers before the year ends, according to Black Knight, a mortgage and real estate analytics company.

What happened to mortgage rates in September

Mortgage rates rose each week in September. Interest rates for 30-year fixed-rate mortgages had a brush with 6% back in June, but last month they quickly went north of 6% and stayed there. Other loan types saw increases, too — interest rates on 15-year fixed-rate mortgages and 5-year adjustable-rate mortgages, for example, have been above 5%.

Our September forecast predicted that rates for fixed-rate mortgages would "remain fairly stable" for the first three weeks of the month, potentially rising following the Fed's announcement on the 21st. Instead, that rise started soon after Labor Day, as those weeks saw Federal Reserve officials making public comments about their commitment to fighting inflation with rate hikes, plus a report from the Bureau of Labor Statistics showing that while the rate of inflation had slowed, it was still near 40-year highs.

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