Mortgage rates climb, sidelining homebuyers

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Kimberly Adams (0:31)

Mortgage rates keep climbing, which is keeping home buyers on the sidelines. Another thing holding borrowers back, their overall financial health.

From Marketplace in Washington, I'm Kimberly Adams. I checked this morning on Mortgage News Daily, and the average rate for a 30-year fixed is now up to 7.6 percent. And with bond yields rising this morning, rates are likely to go higher since mortgage rates typically follow what's happening in the bond market. As the cost of a mortgage has gone up, the demand for home loans has gone down to a two-year low, according to the Mortgage Bankers Association. Marketplace's Kaylee Wells has more on where rates and mortgage demand may be headed next.

Kaylee Wells (1:14)

Mortgage rates have gone up this year because of government debt, trade wars, oil prices.

Kara Ng (1:20)

And then at the same time, we're also spending a lot on AI, and that kind of debt has sort of pushed up borrowing costs across the board.

Kaylee Wells (1:27)

Senior economist Kara Ng at Zillow says sure, today's mortgage rates pale in comparison to 15% in the 80s.

Kara Ng (1:35)

But think about where home prices are compared to incomes. Okay, your income, your borrowing costs and the price of your home, all that has evolved since the days when mortgage rates were higher.

Kaylee Wells (1:46)

Ng doesn't see double digit mortgage rates returning, but neither are the 3% rates from the pandemic, says Timothy Savage, who teaches at NYU's Shack Institute of Real Estate, because that's when people relocated out of high demand areas.

Timothy Savage (2:00)

We're back into a world where basic supply and demand relationships have re-emerged.

Kaylee Wells (2:08)

As for what's next, mortgage rates will probably decline when the war in the Mideast ends. But, says Richard Green, the director of the USC Lusk Center for Real Estate, I have no idea when the war in Iran is going to end.

Plus, Green says government debt keeps climbing, which means the demand for borrowing climbs too, which means mortgage rates could stay elevated. I'm Kaylee Wells for Marketplace.

Kimberly Adams (2:49)

Tomorrow morning, the Labor Department is going to report how many jobs employers added in September, along with how much average earnings rose. Earlier this week, the Bureau of Economic Analysis reported that in August, consumer spending rose more than half a percent, even though people's incomes were flat. Meanwhile, some loan officers surveyed by the Federal Reserve recently reported that they're seeing rising delinquencies among both households and businesses. So Marketplace's Justin Ho talked with a few bankers about what they're seeing.

Justin Ho (3:24)

At LaSalle State Bank in Illinois, Chief Lending Officer Chris Duncan says he's been noticing some late payment creep in recent months.

Chris Duncan (3:31)

Folks who might have been paying their loans 20 days past due might now be paying them 25

Justin Ho (3:38)

Duncan says he's seeing this happen the most with mortgages and auto loans. And his sense is that families are struggling with inflation.

Chris Duncan (3:45)

When those paychecks aren't increasing at the same rate that your expenses are, you know, those paychecks have to get stretched further and further and further. And eventually they don't stretch anymore.

Justin Ho (3:55)

Duncan says he's not that alarmed at this point, but he says he is reaching out to his customers to try and prevent those payments from getting too far behind.

Chris Duncan (4:03)

Once you get to 30 days past due, you're two payments past due, right? 30 days is, you know, last month's payment and this payment. And it's really hard for borrowers to catch up when they're two payments behind.

Justin Ho (4:15)

Inflation is also making it hard for business borrowers to catch up. Brad Bolton, CEO of Community Spirit Bank in Red Bay, Alabama, says his customers are struggling with higher fuel prices.

Brad Bolton (4:25)

And this is mainly coming from, you know, construction-related businesses, loggers, you know, timber harvesters and truckers in general.

Justin Ho (4:33)

Bolton says many of those businesses can't pass higher fuel costs onto their customers. And as a result?

Brad Bolton (4:39)

It squeezes their cash flow and their profitability and ultimately their ability to service their debts.