Housing News

Mortgage Interest Tick Up, but Homebuyer Demand Holds Steady

Mortgage interest rates moved higher this week, but homebuyers appear to be adjusting to changing market conditions rather than calling off their home searches.

The average rate on a 30-year, fixed-rate mortgage rose to 6.71% for the week ending Sept. 3, according to Freddie Mac. That was up from 6.66% a week earlier and from 6.50% at the same time last year.

“Purchase demand has remained relatively stable indicating steady interest from buyers adapting to evolving market conditions,” said Sam Khater, Freddie Mac’s chief economist, in a statement.

A homebuyer purchasing a $400,000 home with 20% down would pay about $2,067 a month in principal and interest at this week’s average mortgage rate.

But despite elevated rates, homebuyers remain active in the market.

Applications to purchase a home increased 2% in the week ending Aug. 28 compared with the previous week, according to the Mortgage Bankers Association (MBA). Purchase applications were essentially flat from a year earlier, declining just 0.2%.

More homes for sale may be helping keep homebuyers in the market even as borrowing costs fluctuate.

“In many local markets, potential buyers have plenty of homes to choose, and this is likely supporting transaction volume,” said Mike Fratantoni, MBA’s senior vice president and chief economist, in a statement.

Homebuyers are also adjusting how they finance their purchases. Adjustable-rate mortgages (ARMs) accounted for 8% of mortgage applications last week, according to MBA. That was the highest share in five weeks.

ARMs typically offer a lower introductory interest rate than comparable fixed-rate mortgages, which can help reduce the initial monthly payment. Then the mortgage rate adjusts after a certain amount of time based on current rates up to a certain cap.

Homebuyers heading into the fall market may find opportunities on the price side of the affordability equation.

The median listing price fell to $424,500 in August, down 1.3% from a year earlier, according to Realtor.com. That marked the 10th consecutive month of year-over-year declines.

Meanwhile, 20.4% of home listings had a price cut, the highest share this year. Homebuyers also had more options, with about 1.14 million active listings, up 3.6% from a year ago.

“There’s some good news for people planning to buy this year: home prices continue to decline, and the share of listings with price cuts is at its highest level this year,” said Realtor.com Senior Economist Jiayi Xu in a statement. “[That’s] a sign that good deals are out there.”