The national average for a 30-year fixed-rate mortgage rose to 6.95% from 6.86% the previous week, Freddie Mac said Wednesday. The increase ended a four-week streak of declines, bringing rates back to mid-June levels.
The average interest rate for a 30-year fixed-rate loan was 6.81% a year ago, according to Freddie Mac, while the average interest rate for a 15-year fixed-rate mortgage also rose to 6.25% from 6.16%, compared with 6.24% a year ago.
With interest rates stuck at or near 7% for the past year, homeowners with low-rate mortgages taken out during or before the COVID-19 pandemic are hesitant to put their homes on the market.
This has led to a shortage of housing inventory, driving up prices and creating home affordability issues.
Lawrence Yun, chief economist for the National Association of Realtors, said there is reason to believe the inventory shortage could ease even as interest rates remain high.
“We're on the brink of an economic recovery,” Yoon told Yahoo Finance ahead of the release of the weekly interest rate data. “People are starting to give up on 3% mortgage rates because of changing living circumstances.”
Yoon said more homes are expected to come onto the market as Americans need new homes for newborns, new school years, retirement and death.
Read more: Mortgage rates as of July 3, 2024: Rates rising across the board
Rising inventory and sluggish demand
According to the National Association of Realtors, the number of homes for sale rose nearly 20% year over year to 1.28 million in May, the highest inventory level in nearly three years. Month over month, inventory is up about 7%.
At the current pace of existing home sales, it would take 3.7 months for all homes on the market to sell, according to the NAR — the slowest pace since 2020 and a sign the market is shifting toward buyers.
Still, the rising inventory hasn't enticed homebuyers yet. The Mortgage Bankers Association's latest market composite index, which tracks mortgage application volume, rose less than 1 percentage point last week. New mortgage applications rose 1 percent from the previous week but remained 13 percent lower than the same period a year ago.
Housing experts blame the weak demand on record home prices: The median sales price hit $419,300 in May, according to the National Association of Realtors. Existing-home sales are also weak, falling 0.7% in May.
At current average interest rates, homebuyers would pay about $2,220 per month for a median-priced home with a 20% down payment, according to Yahoo Finance's mortgage calculator — about $800 more than they would have paid in 2021 when interest rates were hovering around 3%.
The story continues
Read more: Mortgage rates are hovering around 7%, but is now a good time to buy a home?
However, as an increase in housing supply boosts the housing market, homebuyers may see some recovery in affordability.
“As more options come to the market, home prices will begin to stabilize,” Yoon said.
Rebecca Chen is a reporter for Yahoo Finance and previously worked as a certified public accountant (CPA) in investment tax.
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