Mortgage rates jumped back above 5%, after briefly and barely falling below that level last week.
The rate on the 30-year fixed mortgage increased to 5.22% from 4.99% the week prior, according to Freddie Mac. While the rate remains lower than the 5.81% registered in June, it’s still 2 percentage points higher than the start of the year.
The jump in rates is discouraging news for sidelined, price-shocked buyers, who are contending with tough affordability conditions. Meanwhile, homeowners are growing wary about selling, as the cooler market has forced some to lower their asking prices.
“The 30-year fixed-rate went back up to well over 5% this week, a reminder that recent volatility remains persistent,” said Freddie Mac Chief Economist Sam Khater, in a statement. “Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer.”
Homebuyers skittish amid higher rates
Rates on mortgages fell below 5% last week for the first time since April, but that short reprieve did little to spur would-be buyers.
Housing sentiment hit its lowest point in a decade in July, according to a Fannie Mae survey. Only 17% of respondents said it’s a good time to purchase a home, down from 20% the month prior, signaling how rising borrowing costs have quickly doused the once-blistering housing market.
The volume on purchase applications also decreased 1% from one week earlier, according to the Mortgage Bankers Association survey for the week ending August 5, and was 19% lower than the same week one year ago. Activity has now fallen in five of the last six weeks, as affordability pressures concern buyers.
“Higher interest rates are impacting home affordability and represent a real drag on those first-time homebuyers,” Jeffrey Ruben, president of WSFS Mortgage, told Yahoo Money. “But they have not yet choked off the man to the point where you don’t see people buying. It just means being a little bit more cautious and measured on what you can afford and what you can buy.”
Those looking to purchase also may have a harder time qualifying for a mortgage. Credit availability for mortgages fell to its lowest level since May 2013 last month — down 9% from the month prior, the MBA reported — an indication that lending standards are tightening.
“Lenders have responded accordingly to the decrease in demand for refinance and purchase loans by reducing loan offerings, including ARMs, cash-out refinances, and investment properties,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a news release.
Home sellers are pricing down listings
To attract buyers, more home sellers are reducing their listing prices.
The percentage of homes with a price reduction increased to 19.1% in July from 14.9% in June and is close to typical 2017 to 2019 levels, according to Realtor.com. The median home price for active listings declined to $449,000 in July, down from a record-high of $450,000 in June.
That’s showing up as dollars lost at closing for sellers, who may feel they missed out on the hot market. The average purchase price among homes being financed fell by another $10,000 (-2.2%) in July and is now down by more than $31,000 (-6.6%) since March, according to Black Knight.
The percentage of homeowners who believe it’s a good time to sell continued to deteriorate, according to Fannie Mae’s confidence index, falling to 67% in July from 76% in May.
“Mortgage rates are really the driving force behind why sellers are having to drop that price,” Daryl Fairweather, chief economist at Redfin, told Yahoo Money. “Buyers oftentimes just can’t keep up with that kind of money and they end up dropping out of the housing market or getting a lot more frugal. That means sellers have to meet buyers where they’re at.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.