Housing News

Mortgage Interest Rates Rise as Homebuyer Demand Holds Steady

Mortgage Interest Rates Rise as Homebuyer Demand Holds Steady

By Margaret Heidenry

Mortgage interest rates moved higher this week, while homebuyer demand remained relatively steady and continued to outpace last year.

The average rate on a 30-year, fixed-rate mortgage rose to 6.76% for the week ending Sept. 10, according to Freddie Mac. That was up from 6.71% a week earlier and 6.35% at this time last year.

A homebuyer purchasing a $400,000 home with 20% down would pay about $2,077 a month in principal and interest at this week’s average mortgage rate. This does not include home insurance, property taxes, or homeowner association fees.

The latest Freddie Mac rate is based on mortgage rates over the past week, so it may not fully reflect more recent movements in financial markets.

Mortgage rates generally follow the 10-year Treasury yield, aka the bond market, which is at its highest level since November 2023. They are also influenced by whether the U.S. Federal Reserve raises or lowers its benchmark rate, which is separate from mortgage rates.

Realtor.com Senior Economist Anthony Smith wrote that inflation concerns and the conflict with Iran have been driving some of the recent movement in the bond market.

“Each round of renewed tensions has reinforced the same dynamic that has driven rates higher since late February,” said Smith. “Oil prices rise, inflation fears follow, and bond markets reprice accordingly.”

Smith said inflation remains the primary focus for the Federal Reserve and bond markets ahead of the Fed’s meeting next week. A cooler-than-expected inflation reading could provide some relief for borrowing costs.

Homebuyer demand, meanwhile, has remained relatively resilient.

Applications to purchase a home dipped just 0.2% in the week ending Sept. 4 compared with the previous week, according to the Mortgage Bankers Association (MBA). Purchase applications were 4% higher than during the same week last year.

“Purchase applications overall were little changed from last week, but more borrowers have shifted to using ARM loans, with the ARM share of applications at 8.5 percent, the highest share since June,” said Joel Kan, MBA’s vice president and deputy chief economist.

ARMs stand for adjustable-rate mortgages. These loans start with a lower interest rate for the first five, seven, or 10 years of the loan and then the rate adjusts to the current market up to a certain cap.

Federal Housing Administration (FHA) loans also gained ground, accounting for 17.2% of total applications, up from 15.9% the previous week.

The increased use of ARMs and FHA loans shows some borrowers are exploring different financing options as they work toward homeownership.