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Last updated on December 5th, 2022 at 10:06 pm
In the DC region, the maximum limit for a conventional mortgage (purchased by Fannie Mae or Freddie Mac) is currently $970,800. At today’s rates, that’s about $6,100 a month on a 30-year mortgage, up $1,400 a month from a year ago.
While most borrowers didn’t take out $971,000 in loans, it shows just how much the spike in mortgage rates last year has affected purchasing power.
The Federal Reserve raised the benchmark federal funds rate this year aggressively in the past two meetings to reduce inflation, which has affected short-term borrowing costs such as credit cards, car loans, and adjustable-rate home equity loans, but the Fed’s actions have no direct impact on fixed mortgage rates, and the recession is good for mortgage lenders.
“Longer-term interest rates, as reflected in mortgage rates, are affected by the outlook for future economic growth,” said Len Kiefer, deputy chief economist at Freddie Mac.
“When the economy weakens, which market participants expect, that usually leads to lower interest rates, regardless of what happens to short-term rates like the Fed’s key rate.”
Mortgage rates closely track U.S. Treasury yields, which have fluctuated this year. The 10-year yield, now around 2.7%, is down from a recent high of 3.5% in June and remains off a recent low of 1.4% in December.
The average rate for a 30-year fixed-rate mortgage is currently 5.3%, up from 5.8% earlier this year, according to Freddie Mac’s weekly report. A year ago, the average 30-year fixed rate was 2.8%.
These are average rates, and borrowers with exceptional credit scores and healthy household incomes can get lower rates.
Those with weaker credit and income histories may have higher than average rates. This has always been the case, but the current spread between rates is wide.
“The difference in rates that borrowers, if not the same borrowers, can get can be very different.
This has increased because the market has changed, so borrowers who are active in the market may be considering buying,” Kiefer said.
Higher borrowing costs have slowed home sales in recent months. “Home signings will continue to decline if mortgage rates continue to rise as they have so far this year,” said Lawrence Yun, chief economist for the National Association of Realtors.
“There are signs that mortgage interest rates could be at or very close to a record high in July,” Yun said.
NAR estimates that home sales will decline 13% in 2022, with 30-year mortgage rates stabilizing around 6% this year.
Reference Source: WTOP News
