Homebuyers must wait longer for relief on mortgage rates, which rose to within a hair of 7% this week.
The average rate on the 30-year fixed mortgage reached 6.96% this week, up from 6.90% a week ago, according to Freddie Mac. That matched the highest level of the year, which previously occurred in mid-July.
The increase exacerbates an increasingly untenable market for buyers who not only have to swallow higher borrowing costs, but also they must compete in an inventory-starved market because elevated rates have dissuaded homeowners from selling. A meaningful decline in rates is unlikely, too, in the near term.
"We expect mortgage rates may notch down slightly as inflation comes under control, but they are unlikely to return to 5% in the near future," Orphe Divounguy, a senior economist at Zillow Home Loans, wrote in a Zillow report, "That means many homeowners will move only for major life events, like a new baby or retirement."
The rise in rates frustrated homebuyers.
The volume of mortgage applications for purchases decreased 3% for the week ending Aug. 4 from the previous week, the Mortgage Bankers Association found. Rates on all types of mortgages increased that week, pricing buyers out.
That’s led to a record share of Americans thinking now is a bad time to purchase a home, according to the latest housing sentiment survey by Fannie Mae. The record low confidence in homebuying comes at a time when people are actually feeling more secure in their job, with 60% of surveyors not concerned about losing their job.
"Unsurprisingly, consumers continue to attribute the challenging conditions to high home prices and unfavorable mortgage rates," Doug Duncan, Fannie Mae’s chief economist, said in a statement.
Prices, which rose 1.4% from May to June per Zillow, are increasing because there’s too few homes on the market to satisfy demand from buyers.
The lack of existing homes for-sale inventory is largely attributed to sellers not wanting to give up their low interest rate they secured during the pandemic for one that’s up to twice as high.
For instance, 80% of US homeowners have a rate under 5%, with a third holding a rate under 3%, according to Zillow. Those with rates below 5% are almost half as likely to sell their home than those with rates above that threshold.
"If rates were to settle back to say the mid-4% range and prices were to settle back further from recent record highs, that combination might help promote better balance in the market, since the jump from property A to property B might be more manageable," Keith Gumbinger, vice president at HSH.com, a mortgage resource website, wrote to Yahoo Finance.
But a decline of that magnitude is probably not around the corner. While the Federal Reserve is expected to not hike its benchmark interest rate in September following Thursday’s inflation report, the central bank is certainly not expected to cut rates anytime soon.
Read more: What the Fed rate hike means for mortgage rates and loans
That’s likely to keep the yield on the 10-year Treasury — which mortgage rates tend to follow — from falling too much.
"With unemployment at 3.5%, it's hard to imagine any Fed rate cuts this year or early in 2024 without the aid of a significant adverse economic event like a recession, which the Fed seems to have ruled out," Jonathan Miller, president and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm, told Yahoo Finance.
Instead, rates will likely moderate some over the coming year, slowly increasing listing inventory and help the housing market get "unstuck," Miller said.
"As time passes from the record-low 30-year fixed era, consumers slowly acclimate to a world with higher rates and, with the addition of changing personal needs over time, bring more existing listing inventory to market," he said.
"Patience, it seems, is still a virtue."
Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
Read the latest financial and business news from Yahoo Finance