The 30-year fixed-rate mortgage (FRM) surpassed 7% for the week ending Aug. 17, reaching its highest level in over 20 years, according to the Primary Mortgage Market Survey from Freddie Mac. The 30-year FRM averaged 7.09%, up from 6.96% the prior week and from 5.13% during the same week a year ago.
“The economy continues to do better than expected, and the 10-year Treasury yield has moved up, causing mortgage rates to climb,” says Sam Khater, chief economist for Freddie Mac. “The last time the 30-year fixed-rate mortgage exceeded 7% was last November. Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales.”
The scarcity of resale inventory—largely fueled by the lock-in effect and persistently high interest rates—has caused the share of newly built homes to remain elevated. According to a report from Redfin, new homes represented 31.4% of single-family homes on the market in the second quarter, the highest share of any second quarter on record and only a slight decline from the 33.6% share in the first quarter. Redfin says the portion of new homes of all inventory is 30.3% higher than a year ago and nearly double the pre-pandemic share of 17% in the second quarter of 2019.
As mortgage rates continue to rise, mortgage applications have decreased. According to the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending Aug. 11, applications decreased 0.8% from a week earlier. The refinance index is 35% lower than the same week a year ago, while the seasonally adjusted purchase index decreased 0.2% from a week earlier.
“Overall applications decreased because of these higher rates, as both purchase and refinance applications ended the week at their lowest levels since February 2023,” says Joel Kan, MBA vice president and deputy chief economist. “Government purchase applications provided a bright spot, increasing 2.4% over the week, driven by increases in both FHA and VA purchase categories. The ARM share of applications rose slightly to 7%, the highest since April 2023, as borrowers look for relief from higher fixed rates.”
Prospective buyers are increasingly turning to new construction as a solution to the limited supply of existing homes. Buyers are also benefiting from builders’ ability to offer rate buydowns or other incentive options to turn inventory.