On Thursday, the average rate on a 30-year fixed mortgage rose for the third consecutive week to 6.76%. This is the highest level in more than 15 months.
According to a Realtor.com article today, "several forces could keep borrowing costs higher for longer: Wholesale inflation accelerated to 5.4% in August, oil prices surged above $100 a barrel as the conflict with Iran escalated, and the 10-year Treasury yield—closely watched by the mortgage market—climbed toward 5%."
This certainly won't help the real estate market but there are ways around this rate. The most accessible to all buyers is to pay points (1 point is 1% of the total loan) and your interest rate can be lowered an average of .25% per point paid. For qualified buyers there are also FHA and VA loans which are lower than the 6.76%.
One thing to remember is 6.76% is inline with historic averages. The challenge is that at other times in history, when the rates were well above 10% (I am looking at you 1980s!), home prices were much lower so the average buyer was still able to afford a house. Because our average single family home in San Diego costs around $950,000 a 6.76% mortgage makes home ownership unattainable for many buyers in San Diego unless they pay points.
If buyers become less confident that substantially lower mortgage rates are coming soon, the incentive to pay points upfront for a lower rate on today’s mortgage becomes stronger.
The question is how much buyers are willing to spend to get a better rate and how long will they have to keep that mortgage before the gamble pays off?
