Amidst a slow but steady rise, the average 30-year fixed-rate mortgage has reached 6.9%, according to Freddie Mac’s latest Primary Mortgage Market Survey. This increase marks a significant climb from the previous week’s 6.81% and a year-on-year surge from 4.99%. The surge in mortgage rates comes as a mixed bag of economic data prompts reactions from financial authorities.

The recent Federal Reserve decision to raise interest rates by 25 basis points, coupled with the announcement of its commitment to reach a 2% inflation target, has left many speculating that further rate hikes may be on the horizon before the year’s end. Fed Chairman Jerome Powell emphasized the central bank’s dedication to controlling inflation, which could impact mortgage rates.

On the brighter side, a strong job market and resilient economic growth have extended the recession timeline, according to Fannie Mae’s economic forecast report. However, this positive outlook clashes with the recent downgrade of the U.S. credit rating by Fitch, from AAA to AA+. The rating agency cited fiscal deterioration over the next three years as the reason for the downgrade, raising concerns about the nation’s financial stability.

Freddie Mac Chief Economist Sam Khater attributes the surge in mortgage rates to the combination of optimistic economic data and the U.S. government’s credit rating downgrade. Despite these rising rates and a dip in purchase demand, home prices continue to climb due to extremely low unsold inventory.

Housing market experts advise potential homebuyers to act quickly if they wish to secure a mortgage before rates potentially go even higher. Shopping around for the right mortgage or refinancing an existing one might prove beneficial for those seeking the most favorable interest rates. Credible offers a platform for potential buyers to speak with mortgage experts and have their questions addressed.

Inventory Woes Challenge Homebuyers

While mortgage rates have been hovering between 6% to 7% since the beginning of the year, affordability remains a key concern for prospective buyers. Many have adjusted their budgets to accommodate the current rates, but their biggest challenge lies in finding available housing inventory.

According to the National Association of Realtors (NAR) 2023 Member Profile, 32% of realtors attribute the hesitancy to buy to the lack of inventory, rather than mortgage rates. The second quarter of 2023 saw homeowner vacancy rates at a historical low of 0.7%, exacerbating the inventory shortage.

The shortage of available housing is further fueled by the impact of high mortgage rates. Many homeowners, with existing mortgages at significantly lower rates, find it expensive to finance their next home purchase. As a result, they hold onto their current homes, further limiting the supply of available houses in the market.

Keeping Current Matter Chief Economist George Ratiu advises prospective buyers not in a hurry to keep an eye on the fall and winter months. These seasons may bring better housing values and a less competitive market, offering buyers a better chance to find their dream home.

Rebalancing the U.S. Housing Market

The U.S. housing market requires a rebalance to cater to middle-income buyers. Households earning up to $75,000 annually are struggling to find affordable homes, and the market is in dire need of approximately 320,000 homes priced up to $256,000 to meet this demand.

NAR’s Senior Economist and Director of Real Estate Research, Nadia Evangelou, emphasizes the importance of addressing both affordability and limited supply. The goal is not just to increase housing supply but to provide more homes in the price range that most people can afford.

As of June, the median list price for available homes was $445,000, making it difficult for middle-income buyers to afford a significant portion of the market. Five years ago, this income group could have afforded to buy half of all available homes, highlighting the challenges they face in building wealth through homeownership.

If you’re looking to become a homeowner, now is the time to explore mortgage options and secure the best rates available. Websites like Credible offer tools to compare interest rates from multiple lenders without impacting your credit score. Take advantage of the resources available to make an informed decision and find the home that fits your budget and dreams.

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