Mortgage rates for September 5: Rates ease slightly

Mortgage rates have finally begun to decline after hovering at 22-year highs for the past several weeks. The average for a 30-year fixed-rate mortgage was 7.08% on September 1, according to Mortgage News Daily — a decline of 0.31 points from the week before.

As has been the story for the past year, the ups and downs are tied largely to inflation. There was encouraging news on that front this week: Consumer expenditures, one of the Federal Reserve’s favored measures of inflation, were up just 0.2% month over month in July, according to a report released on August 31. That was in line with economists expectations, though the 3.3% increase over the previous year is still well above the Fed’s 2% goal.

What happens next is largely dependent on whether there’s another Fed rate hike at the September meeting. The Fed has raised the federal funds rate 11 times in the past year and a half in its campaign to bring down inflation. 

Investors are betting that the Fed will hold that benchmark rate (which is what it costs banks to borrow from each other overnight) at 5.25%-5.50%. The odds of a pause are 93%, according to the CME’s FedWatch tool. 

Fed Chair Jerome Powell, however, struck a more hawkish tone in recent weeks when he spoke at an economic symposium in Jackson Hole, Wyoming.

“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” he said.

If the Fed hikes rates again, expect mortgage rates to keep trending up. Some economists predict that mortgage rates could even top 8%, a level not seen since 2000. (Though that’s still not the highest mortgage rate in history: 30-year fixed rate mortgages peaked above 18% in 1981, according to Freddie Mac.)

Despite the spikes in recent weeks, many analysts say that 8% rate scenario is unlikely. The Mortgage Bankers Association expects the average for a 30-year fixed-rate mortgage to fall to 6.2% by the end of the year, while Fannie Mae expects them to dip only slightly to 6.7%.

Mortgage rates closely track the 10-year Treasury yield, which goes up with the federal funds rate. As a result, rates on 30-year fixed-rate mortgages have more than doubled over the past couple of years as the Fed raised the benchmark borrowing rate by a whopping 5.25 basis points. (Unsurprisingly, homeowners who scored one of those ultra-low rates are staying put — more on that later.)

Some economists, however, have noticed a concerning trend recently in the spread between the 30-year mortgage rate and the 10-year Treasury yield. Right now there’s a spread of about 300 basis points between the two — which Cris deRitis, deputy chief economist at Moody’s Analytics, told MarketWatch is “elevated and highly unusual.” High spreads tend to precede or accompany crises, such as the Great Recession.  

In recent weeks, many economists have predicted the U.S. could avoid a recession as it beats back inflation, instead achieving the legendary soft landing. There’s enough positive economic data to support assumptions that a soft landing could still happen. But analysts will be closely monitoring that spread in the meantime.

The average monthly mortgage payment hit an all-time high in the four weeks ending August 27, according to Redfin. That’s due to the collision between sky-high mortgage rates and increasing home prices. The median sale price for homes rose 5% year over year, coming in at $380,000.

Limited inventory continues to boost prices, especially in the most popular markets. The total number of homes for sale dropped 19% during that period, the most since February 2022.

Surprisingly, mortgage applications were up 2.3% from the previous week for the week ending August 25, according to the Mortgage Bankers Association.

“Mortgage applications for home purchases and refinances increased for the first time in five weeks but remained at low levels,” said Joel Kan, MBA’s vice president and deputy chief economist. “Purchase applications increased but were still 27 percent lower than a year ago, as elevated mortgage rates and tight housing inventory continue to weigh on home buying activity.”

Ready to move anyway? Many real estate pros are dredging up the old adage, “marry the house, date the rate.” Translation: If you see your dream home now, you don’t necessarily have to pass it by while waiting for a better mortgage rate in the future. Consider taking out a mortgage knowing that you’ll refinance once rates drop. 

Just a three-quarter point drop is enough to make refinancing worth it (which means this week’s 0.31 decline puts some recent mortgages almost half-way there). And, as you look for the best possible rate right now, make sure you compare offers among multiple lenders. Just getting quotes from four lenders can save you up to $1,200 every year on your mortgage, according to a study by Freddie Mac. 

On average, the interest rate for a 30-year mortgage on September 1 was 7.08%, down from 7.39% on August 25. 

On average, the interest rate for a 15-year mortgage on September 1 was 6.45%, down from 6.77% on August 25. 

On average, the interest rate for a 30-year fixed rate jumbo mortgage on September 1 was 7.25%, down from 7.36% on August 25. 

On average, the interest rate for a 5/1 ARM on September 1 was 6.97%, down from 7.19% on August 25.

Mortgage rates are influenced by a variety of factors, including:

• Your credit score
• Down payment
• Your debt-to-income ratio (DTI)
• The type of loan you’re getting
• Loan term
• Interest rate type (fixed vs. adjustable)
• Inflation and the overall economy
• The Federal Reserve (which doesn’t set mortgage rates, but it certainly influences them)

If you’re currently shopping for a mortgage or considering refinancing, you’ve probably wondered why the quoted interest rate isn’t the same as the APR. That’s because the loan’s interest rate is what you pay the lender to borrow the money, while the APR (annual percentage rate) encompasses both the interest rate and all loan-related fees. Loan-related fees can include:

• Mortgage broker fees
• Loan origination fees
• Mortgage insurance premiums
• Some closing costs

The APR, therefore, is a truer measure of what it will actually cost you to borrow money to buy a home.

Editorial Disclosure: All articles are prepared by editorial staff and contributors. Opinions expressed therein are solely those of the editorial team and have not been reviewed or approved by any advertiser. The information, including rates and fees, presented in this article is accurate as of the date of the publish. Check the lender’s website for the most current information.

This article was originally published on SFGate.com and reviewed by Lauren Williamson, who serves as the Home and Financial Services Editor for the Hearst E-Commerce team. Email her at [email protected].