Mortgage rates climb higher, triggering home price drops

Home prices are down but still remain well above pre-pandemic levels, according to Zillow

Mortgage rates continued to climb this week, hitting levels not seen since October 2008, according to experts. (iStock)

Rates for the 30-year mortgage increased again this week, jumping to the highest level since October 2008, experts said.

The average rate for a 30-year fixed-rate mortgage increased to 6.29% for the week ending Sept. 22, according to Freddie Mac's Primary Mortgage Market Survey. This is up from last week when it averaged 6.02% and is significantly higher than last year when it was 2.88%.

Other loan terms also increased this week. The 15-year mortgage rose to 5.44%, up from 5.21% last week and up from 2.15% last year. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) also increased to 4.97%, up from 4.93% last week and up from 2.43% last year.  

Sam Khater, Freddie Mac's chief economist, said that rising mortgage rates have led to a drop in home prices, but supply is still an obstacle to homebuyer affordability.

"Impacted by higher rates, house prices are softening, and home sales have decreased," Khater said. "But despite this decrease in sales, the number of homes for sale remains well below normal levels."

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Low housing supply remains an obstacle

Housing inventory will likely remain constrained for the rest of this year, Lawrence Yun, National Association of Realtors’ (NAR) chief economist, said in a statement

Yun also said that the low existing-home supply increased the need for new-home construction. 

The latest National Association of Homebuilders (NAHB) /Wells Fargo Housing Market Index (HMI) said that builders' confidence worsened for the ninth straight month, with sentiment falling to 46 in September after being at 49 in August. Anything below 50 is considered poor. The drop in confidence highlights how elevated interest rates, building-material supply chain disruptions and high home prices have taken a toll on affordability. 

"Builder sentiment has declined every month in 2022," Robert Dietz, NAHB's chief economist, said. "And the housing recession shows no signs of abating as builders continue to grapple with elevated construction costs and an aggressive monetary policy from the Federal Reserve that helped pushed mortgage rates above 6% last week, the highest level since 2008." 

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Home prices soften but affordability still an issue

Higher mortgage rates have dampened homebuyer appetite, resulting in a drop in existing home sales for seven consecutive months, according to August home sale prices were also down 6% from their June peak.

But despite the recent softening, home prices are still up 14.1% from a year ago and up 43.8% since August 2019, meaning that affordability remains an issue for homebuyers, according to Zillow.  

George Raitu,'s senior economist, said that a buyer currently purchasing a median-priced home with a 30-year fixed-rate mortgage is paying roughly $900 more per month toward their loan than they would have a year ago. That would add more than $10,000 to a homebuyer's financing burden. 

"For buyers watching their take-home pay shrink due to higher prices, and shopping budgets diminish due to rising rates, today's housing market remains highly unaffordable," Raitu said. "In many locations, price cuts may be the only viable option to restore housing balance and affordability."

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