The average weekly mortgage rate for a 30-year fixed mortgage rose to 5.55% on August 25, compared to just 3.22% at the beginning of the year. Dramatic fluctuations in mortgage rates occur when investors oscillate between concern about inflation and concern about a recession. When inflation is the most important thing, mortgage rates tend to rise because inflation erodes the value of long-term bonds. Since rates tend to follow the same trajectory as the 10-year Treasury yield, they move higher when investors sell bonds and demand a higher return on their investments.
The Federal Reserve's interest rate hikes to reduce inflation have driven up mortgage rates this year, with the biggest increase in 40 years. That has made owning a home unaffordable for many Americans. But interest rates on loans also rise and then fall sharply from week to week. Interest rates on fixed-rate mortgages are likely to remain fairly stable during the first three weeks of September.
Experts at Attom Data Solutions, CoreLogic, Redfin and other industry leaders are divided as to whether 30-year mortgage rates will continue to rise, fall or stabilize in October. Banks use mortgage rates to generate profits, but also to protect themselves in the event that a borrower fails to repay the loan. Average rates for a 30-year fixed-rate mortgage rose to 5.81% at the end of June, but have since stabilized at 5.55% as of August 25, according to Freddie Mac. This week's consumer price index, which showed a 0.1% increase in the inflation rate, dashed those hopes, and economists now speculate that the expected rise of 75 basis points might not be enough.
A couple of weeks ago, that narrative helped to bring mortgage rates back down dramatically to just under 5%. Freddie Mac and the Mortgage Bankers Association are at the lowest end of the group and estimate that the 30-year average fixed interest rate will stabilize at 5.4% and 5.5% for fourth-quarter rate purchases doesn't just mean looking for the lowest rates advertised online, because they're not available to everyone. Mortgage rates had fallen in July and early August, when investors were distracted by talking about a recession, Powell turned his attention back to inflation. Mortgage rates have risen steadily in recent weeks, as financial markets speculated on whether or not the Federal Reserve would continue its aggressive policy to cool inflation.
A mortgage for a single-family home, for example, is usually lower than a mortgage for a multi-family property. If that pattern continues in September, the 30-year mortgage rate will range from approximately 5.75 to 6% until the Fed's announcement. Look for the lowest rate, but also pay attention to your annual percentage rate (APR), the estimated closing costs, and the additional “discount points” fees that are charged upfront to lower your rate. As the September Fed meeting approached and another big rise was expected, average mortgage rates rose for the fourth consecutive week.
Here's everything you need to know about how mortgage rates are determined and how that will affect your home purchase.