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A week after the Federal Reserve resumed its rate hikes, mortgage rates followed suit, according to the latest Freddie Mac survey. As of August 3, the current average rate for 30-year, fixed-rate mortgages is 6.90%.
This represents the second-highest weekly average since mid-November 2022. Except for one mid-July spike to 6.96%, 30-year rates had stayed at or below 6.81% for more than eight months.
What Are the Current Mortgage Rates?
The average rate for a 30-year fixed-rate mortgage was 6.90% as of Aug. 3, an increase from the previous week’s figure of 6.81%. Last year at this time, these mortgage rates averaged 4.99%.
The average rate for a 15-year fixed-rate mortgage was 6.25% as of Aug. 3, a sizable jump from the previous week’s 6.11%. At the same time last year, the rate was almost two full percentage points lower, at 4.26%.
The Fed’s decision wasn’t the only factor influencing mortgage rates. “The combination of upbeat economic data and the U.S. government credit rating downgrade caused mortgage rates to rise this week,” Sam Khater, Freddie Mac’s chief economist, said in a news release.
In addition, Khater said, “Despite higher rates and lower purchase demand, home prices have increased due to very low unsold inventory.”
Figures for the weekly mortgage rates survey come from conventional mortgage applications submitted to lenders across the U.S. and then sent to Freddie Mac. The company buys mortgages and packages them as mortgage-backed securities.
Another Fed Rate Hike Helps Push Up Mortgage Rates
On July 26, the Federal Reserve announced yet another rise in its benchmark interest rate, known as the federal funds rate. The new range for this figure is 5.25% to 5.5%. Mortgage rates typically rise in conjunction with the Fed’s benchmark rate.
Jerome Powell, chairman of the Fed, acknowledged the issue of mortgage rates on July 26. “We’ve got a ways to go to get back” to a balanced housing market, he said.
Many homeowners who otherwise would be inclined to sell are staying put because they hold low-interest mortgages and “so much value” in their mortgages, Powell noted. This contributes to a tight supply of homes and elevated prices, he said.
Strong Economic Growth May Keep Fed’s Inflation Fears Alive
As Khater noted, the federal government released rosy economic data in late July.
For instance, the U.S. Bureau of Economic Analysis reported a jump in U.S. gross domestic product (GDP), a key measure of economic output, in the second quarter of this year. The change amounts to an annual growth rate of 2.4%.
Bill Adams, chief economist at Comerica Bank, has said the Fed probably will view the second-quarter GDP growth as “a little too strong.” As a result, Adams said, the Fed is more likely to increase interest rates again in the second half of 2023.
U.S. Government Debt Downgraded
In a startling move, Fitch Ratings on Aug. 1 lowered the U.S. government’s credit rating to AA+ from AAA. Fitch cited “expected fiscal deterioration over the next three years,” growth in the national debt and “the erosion of governance” compared with similar countries.
Fitch too predicts another Fed rate hike by September. The credit rating agency projects the benchmark interest rate will rise to a range of 5.5% to 5.75%. It also forecasts a mild recession in late 2023 and early 2024.
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