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Drop in 10-Year Treasury Yield & Mortgage Rates Is Just Another Bear-Market Rally. Longer Uptrend in Yields Is Intact, with Higher Highs and Higher Lows

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“Nothing goes to heck in a straight line.” That’s how functional markets adjust to a new reality: Higher inflation, higher rates.

By Wolf Richter for WOLF STREET.

There has been a lot of discussion and handwringing and Fed-pivot fantasizing about the drop of the 10-year Treasury yield from 4.25% at the end of October to 3.51% at the close on Friday. That’s a 74-basis-point drop. In percentage terms, the yield dropped by 17%. A drop in yield means a rise in prices of these securities. So this drop in yields represents a rally in prices.

But here is the thing: During the summer bear-market rally, the 10-year yield dropped by 25%, from 3.49% to 2.60%. Before then, there were a few smaller bear-market rallies. But the biggest bear-market rally during this bond bear market was from April 2021 to August 2021, when the yield dropped by 30%, from 1.70% to 1.19%.

The 10-year yield closed at 0.52% on August 4, 2020, which marked the end of the 39-year bond bull market. Since then, the 10-year yield has risen sharply, with big surges followed by smaller retracements, followed by big surges, followed by smaller retracements, etc., adhering to the Wolf Street dictum that “Nothing  Goes to Heck in a Straight Line.” The 10-year yield, as it went up, marked higher highs and higher lows each time. And the current bear-market rally fits in nicely, and they yield could drop further, and it would still fit in nicely:

Back in August 2020, the 10-year yield hit the low of 0.52% – after months of widespread propaganda by bond- and hedge-fund kings, queens, and gurus in the social media, on CNBC, and Bloomberg that the Fed would push interest rates into the negative, just like central banks had done in Europe and Japan.

This was an effort to manipulate people into buying a 10-year security with nearly no yield, thereby driving yields down further, and prices up further, to make said kings, queens, and gurus a lot of money.

Whoever ended up buying 10-year maturities at the time got a really bad deal because that marked the bottom of the 39-year bond bull market, during which the 10-year yield had descended from 15.8% in September 1981 to 0.52% in August 2020 – and not in a straight line – on declining inflation and declining interest rates, with some big wobbles in between, and since 2008, fueled by money-printing and interest rate repression.

But now we have the fastest Fed rate hikes in 40 years, and the Fed’s fastest QT ever, having unwound $381 billion in six months.

Mortgage rates followed a similar pattern. The 30-year fixed mortgage rate began the rise in early 2021, from a low of 2.65%. But also not in a straight line. By April 2021, it had reached 3.18%, and then it retraced to 2.78% by June 2021. By the end of December 2021, it was back at 3.11%.

And then as the Fed ended QE, and then raised rates, and then embarked on QT, mortgage rates surged – interrupted by big bear-market rallies, most notably the summer bear-market rally when the average 30-year fixed mortgage rate dropped by 14%, from 5.8% to 4.99%, only to surge again to 7.08% at the end of October. As of Freddie Mac’s index released on December 1, the rate has retraced some of that surge, dropping to 6.49%. This represents an 8.3% drop in the average mortgage rates.

Since early 2021, we still have an unbroken uptrend of the 30-year fixed mortgage rate, marked by higher highs and higher lows, and a further drop would still fit in nicely into the overall uptrend:

The trend is your friend. There has been a huge amount of Fed-pivot mongering and rate-cut mongering and the-Fed-will-restart-QE-soon mongering, etc. All this is part of the normal game of how markets are adjusting to new realities, with each side pushing in its own direction, thereby pushing markets up and down in a volatile manner. But this is how functional markets adjust to new realities. Adjustments don’t happen all at once. And if they do, it’s a truly spooky affair. And they don’t adjust in predictable straight lines either. They go about it over time in their rough and tumble way, but ultimately, they get there.

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Business

Mortgage rates fall for the second week in a row

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Mortgage rates dropped again this week, after plunging nearly half a percentage point last week.

The 30-year fixed-rate mortgage averaged 6.58% in the week ending November 23, down from 6.61% the week before, according to Freddie Mac. A year ago, the 30-year fixed rate was 3.10%.

Mortgage rates have risen throughout most of 2022, spurred by the Federal Reserve’s unprecedented campaign of hiking interest rates in order to tame soaring inflation. But last week, rates tumbled amid reports that indicated inflation may have finally reached its peak.

“This volatility is making it difficult for potential homebuyers to know when to get into the market, and that is reflected in the latest data which shows existing home sales slowing across all price points,” said Sam Khater, Freddie Mac’s chief economist.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who put 20% down and have excellent credit. But many buyers who put down less money upfront or have less than perfect credit will pay more than the average rate.

The average weekly rates, typically released by Freddie Mac on Thursday, are being released a day early due to the Thanksgiving holiday.

Mortgage rates tend to track the yield on 10-year US Treasury bonds. As investors see or anticipate rate hikes, they make moves which send yields higher and mortgage rates rise.

The 10-year Treasury has been hovering in a lower range of 3.7% to 3.85% since a pair of inflation reports indicating prices rose at a slower pace than expected in October were released almost two weeks ago. That has led to a big reset in investors’ expectations about future interest rate hikes, said Danielle Hale, Realtor.com’s chief economist. Prior to that, the 10-year Treasury had risen above 4.2%.

However, the market may be a bit too quick to celebrate the improvement in inflation, she said.

At the Fed’s November meeting, chairman Jerome Powell pointed to the need for ongoing rate hikes to tame inflation.

“This could mean that mortgage rates may climb again, and that risk goes up if next month’s inflation reading comes in on the higher side,” Hale said.

While it’s difficult to time the market in order to get a low mortgage rate, plenty of would-be homebuyers are seeing a window of opportunity.

“Following generally higher mortgage rates throughout the course of 2022, the recent swing in buyers’ favor is welcome and could save the buyer of a median-priced home more than $100 per month relative to what they would have paid when rates were above 7% just two weeks ago,” said Hale.

As a result of the drop in mortgage rates, both purchase and refinance applications picked up slightly last week. But refinance activity is still more than 80% below last year’s pace when rates were around 3%, according to the Mortgage Bankers Association weekly report.

However, with week-to-week swings in mortgage rates averaging nearly three times those seen in a typical year and home prices still historically high, many potential shoppers have pulled back, said Hale.

“A long-term housing shortage is keeping home prices high, even as the number of homes on the market for sale has increased, and buyers and sellers may find it more challenging to align expectations on price,” she said.

In a separate report released Wednesday, the US Department of Housing and Urban Development and the US Census Bureau reported that new home sales jumped in October, rising 7.5% from September, but were down 5.8% from a year ago.

While that was higher than predicted and bucked a trend of recently falling sales, it’s still below a year ago. Home building has been historically low for a decade and builders have been pulling back as the housing market shows signs of slowing.

“New home sales beat expectations, but a reversal of the general downward trend is doubtful for now given high mortgage rates and builder pessimism,” said Robert Frick, corporate economist at Navy Federal Credit Union.

Despite a general trend of falling sales, prices of new homes remain at record highs.

The median price for a newly constructed home was $493,000 up 15%, from a year ago – the highest price on record.

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Business

Mortgage demand rises as interest rates decline slightly

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A home, available for sale, is shown on August 12, 2021 in Houston, Texas.

Brandon Bell | Getty Images

Mortgage applications rose 2.2% last week compared with the previous week, prompted by a slight decline in interest rates, according to the Mortgage Bankers Association’s seasonally adjusted index.

Refinance applications, which are usually most sensitive to weekly rate moves, rose 2% for the week but were still 86% lower than the same week one year ago. Even with interest rates now back from their recent high of 7.16% a month ago, there are precious few who can still benefit from a refinance — just 220,000, according to real estate data firm Black Knight.

Mortgage applications to purchase a home rose 3% for the week, but they were down 41% from a year ago. Some potential buyers may now be venturing back in, hearing that there is less competition and more negotiating power, but there is still a shortage of homes for sale and prices have not come down significantly.

Rates are still twice what they were at the beginning of the year, but they eased somewhat last week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 6.67% from 6.90%, with points increasing to 0.68 from 0.56 (including the origination fee) for loans with a 20% down payment.

“The decrease in mortgage rates should improve the purchasing power of prospective homebuyers, who have been largely sidelined as mortgage rates have more than doubled in the past year,” Joel Kan, an MBA economist, said in a release. “With the decline in rates, the ARM share [adjustable-rate] of applications also decreased to 8.8% of loans last week, down from the range of 10% and 12% during the past two months.”

Mortgage rates haven’t moved at all this week, as the upcoming Thanksgiving holiday tends to weigh on volumes.

“It’s not that things aren’t moving. They just aren’t moving like normal,” said Matthew Graham, chief operating officer at Mortgage News Daily. “Expect things to get back closer to normal next week, but for the market to continue to wait until December 13 and 14 for the biggest moves.”

That’s when the government releases its next major report on inflation and the Federal Reserve announces its next move on interest rates.

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Business

Sharp drop in mortgage rates does little to boost demand

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A home for sale in the Mission Hills area of Los Angeles Tuesday, Oct. 11, 2022 in Mission Hills, CA.

Brian Van Der Brug | Los Angeles Times | Getty Images

Mortgage application volume rose 2.7% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. An additional adjustment was made for the Veteran’s Day holiday.

The small increase followed a government report last week showing that inflation may be starting to ease. That, in turn, sent bond yields plunging and mortgage rates with them. Thursday saw the sharpest one-day drop in the average rate on the 30-year fixed mortgage since daily record-keeping began in 2009.

On a weekly average, the rate on the 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) decreased to 6.9% from 7.14%, with points decreasing to 0.56 from 0.77 (including the origination fee) for loans with a 20% down payment.

On a daily basis, the rate on Thursday alone dropped 60 basis points, according to a separate survey from Mortgage News Daily.

Applications to refinance a home loan fell 2% for the week and were 88% lower than the same week one year ago. The rate drop came toward the end of the week, and Friday was a federal holiday, Veteran’s Day, so it is possible refinance demand has yet to react fully to the rate drop.

Mortgage applications to purchase a home, which don’t generally react quickly to interest rate changes, increased 4% for the week and were 46% lower than the same week one year ago.

“Purchase applications increased for all loan types, and the average purchase loan dipped to its smallest amount since January 2021,” said Joel Kan, a Mortgage Bankers Association economist.

Loan sizes may be falling too due falling home prices or potentially more first-time buyers getting into the market again at the entry level.

Mortgage rates did not move much to start this week, but the yield on the U.S. 10-year Treasury dropped Tuesday, first in the morning after a monthly read on U.S. producer prices increased at a slightly slower pace than expected.

They fell further later, hitting a nearly six-week low, after news broke that missiles hit Poland, killing two people. That sparked fears of greater political risk in the already war-torn region. Mortgage rates loosely follow the yield on the 10-year Treasury.

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Business

Weekly mortgage demand flattens, as interest rates climb even higher

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A man enters a Bank of America branch in New York.

Scott Mlyn | CNBC

Mortgage rates rose again last week, throwing even more cold water on demand from both current homeowners and potential homebuyers. Weekly application volume fell 0.1% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 7.14% from 7.06%, with points increasing to 0.77 from 0.73 (including the origination fee) for loans with a 20% down payment.

“Mortgage rates edged higher last week following news that the Federal Reserve will continue raising short-term rates to combat high inflation. The 30-year fixed rate remained above 7 percent for the third consecutive week, with increases for most loan types,” said Joel Kan, MBA’s deputy chief economist.

Refinance demand, which has been positively crushed by the sharp rise in interest rates, fell another 4% for the week and was down 87% compared with the same week one year ago. Mortgage rates started this year around 3%, so there are very few borrowers left who could benefit from a refinance at today’s higher rates. Refinance demand is now at a 22-year low.

Mortgage applications to purchase a home increased 1% for the week. While that wasn’t a major move, it was the first increase in six weeks. Purchase demand, however, is still down 41% from a year ago and close to a seven-year low.

The adjustable-rate mortgage (ARM) share of activity increased to 12% of all applications. ARMs offer lower interest rates, and while they are considered riskier loans, their rates can be fixed for up to 10 years.

Mortgage rates have been moving sideways to start this week, but that could change Thursday, as investors await the October reading from the government’s consumer price index.

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Business

Homeowners lost $1.5T in equity since May: research

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American homeowners lost more than $1 trillion in equity gained during the pandemic since May, according to a new report. 

The report from the mortgage software and analytics company Black Knight shows mortgage holders collectively lost $1.3 trillion in the second quarter of 2022 and $1.5 trillion since May.  

“In the span of just three months, U.S. mortgage holders saw a total of $1.3T in newly acquired equity evaporate,” Black Knight Data & Analytics President Ben Graboske said in statement.

“That is — by far — the largest quarterly decline on record by dollar value and the largest since 2009 on a percentage basis,” Graboske added. 

During the pandemic, the housing market boomed and home prices skyrocketed.

The average mortgage holder has lost about $30,000 since the May peak, but Black Knight’s analysis showed the average mortgage holder has more than $92,000 more equity than before the pandemic. 

Further, the number of homes underwater — meaning, the house is worth less than the amount owed on the loan to purchase the home — rose by 275,000 in the past four months.

Currently, 500,000 are underwater nationwide. 

“The vast majority of homes at risk of falling underwater are those that were purchased in 2022 and late 2021, at or near pandemic-era peak prices. While these loans clearly deserve careful, ongoing monitoring, to put that into context, just 3.6% of nearly 53M U.S. mortgage holders are either underwater or have less than 10% equity in their homes — roughly half the share coming into the pandemic. 

The Federal Reserve’s fight with inflation, which led to a series of jumbo interest rate hikes, has substantially cooled the housing market after a more than two-year boom. 

Home price growth slowed to record levels in September, falling by 2.6 percent from the previous month. Yet Black Knight’s data shows that prices across the country are still high.

Black Knight’s analysis revealed that home values in the nation’s 50 largest markets remain elevated by anywhere from 19 percent to 66 percent since the start of the pandemic.

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Mortgage demand from homebuyers is nearly half what it was in 2021

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A house’s real estate for sale sign is seen in front of a home in Arlington, Virginia, November 19, 2020.

Saul Loeb | AFP | Getty Images

Mortgage demand fell last week to nearly half what it was a year ago, according to the Mortgage Bankers Association, as rates hit their highest level in 21 years.

Overall, demand for mortgages is at the lowest level since 1997.

Mortgage applications to purchase a home dropped 2% from the prior week and were 42% lower than the same week in 2021. The annual comparison continues to jump each week, as fewer buyers either want or can afford to get into this very pricey housing market.

Applications to refinance a home loan fell just 0.1% for the week, but only because they were so low to begin with – down 86% from a year ago. There are currently fewer than 150,000 qualified borrowers who could benefit from a refinance at today’s rates, according to Black Knight.

Mortgage rates declined slightly to start this week, but are still well over 7% after beginning the year at around 3%. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 7.16% from 6.94%, with points decreasing to 0.88 from 0.95 (including the origination fee) for loans with a 20% down payment.

Federal Housing Administration loans, which come with lower rates and smaller down payment requirements, did experience a slight uptick during the week.

“Despite higher rates and lower overall application activity, there was a slight increase in FHA purchase applications, as FHA rates remained lower than conventional loan rates,” said Joel Kan, an economist at the Mortgage Bankers Association.

The share of homebuyers applying for adjustable-rate mortgages remained high at more than four times what it was at the start of this year. ARMs offer lower rates but are considered a riskier product.

High interest rates are also weighing on home prices. While prices are still higher than they were a year ago, the gains are now slowing at a record pace. Homebuyers are also reconsidering their purchases. Pulte Group reported a 24% cancellation rate in its latest quarterly earnings report Tuesday and said it expected an even higher rate for the next quarter.

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Business

Mortgage bankers expect rates to drop to 5.4% in 2023. What will home prices do?

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NASHVILLE, Tenn. — High mortgage rates and recession fears are hurting home prices, so expect growth to be flat this year, one expert says.

“Our forecast is for home-price growth moderation to continue,” Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, said Sunday during the organization’s annual conference in Nashville, Tenn.

Home prices have already begun moderating. According to Case-Shiller, home prices fell month-over-month from June to July for the first time in 20 years. The latest numbers, which will be for August, will be reported on Tuesday morning.

With a recession likely in the cards, on top of mortgage rates near or above 7%, “we’ve already seen a pretty dramatic pullback in housing demand,” Kan said.

Also see: Mortgage industry group predicts recession next year, expects mortgage rates to come back down from 7%

The 30-year fixed rate averaged 6.94% last week as compared to 3.85% a year ago. The MBA is also expecting rates to come down to 5.4% by the end of next year.

So expect national home-price growth to “flatten out” in 2023 and 2024, he said. This might be a “silver lining” for some, Kan added, as it brings home prices back to more “reasonable levels.”

A flattening of home-price growth should allow households to catch up, in terms of wages and savings, to afford homes that are presently too expensive.

But he also warned that some markets may actually see home prices drop. We’re already seeing home values fall in some markets, from pandemic boomtowns like Austin and Phoenix to well-known expensive ones the San Francisco Bay Area.

Still, even with price drops, don’t expect a surge of inventory as people sit on their ultra-low mortgage rates that they will likely not enjoy again in the near future.

According to June data from the Federal Housing Finance Agency, nearly a quarter of homeowners have mortgage rates of less than or equal to 3%. And the vast majority of owners — 93% — have rates less than 6%.

On top of that, supply is likely to be tight too.

Sellers are said to be “striking” and not selling their homes as they see others forced to cut list prices to woo buyers. Builders are also getting spooked, signaling intent to slow new construction.

Nonetheless, demand for housing should recover eventually, given that there are a lot of people who will soon be in need of a home that they own.

MBA’s Kan estimated that there are 50 million people in the 28-to-38 age demographic, of which some — or many — are likely to become potential homeowners in the future.

For those under 35, the homeownership rate is only 39%, Kan said, while that share increases for people aged 35 to 44, to 61%.

So as people age, “we’re fairly confident if we stick to these trends, you will see a very supportive demographic driver of housing demand for a good number of years,” Kan said.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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Business

Homebuyers aren’t buying and homebuilders aren’t building in the face of untamed mortgage rates

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‘Unhealthy and unsustainable’: Homebuyers aren’t buying and homebuilders aren’t building in the face of untamed mortgage rates

U.S. mortgage rates crept up once again this week as demand for home loans tumbled, according to a pair of widely followed reports.

Buyers and sellers are increasingly on edge as the average 30-year fixed mortgage rate — now more than double what it was at the beginning of the year — inches closer to 7%.

Homebuilders, too, are losing confidence in the housing market amid rising rates, which one industry leader calls “unhealthy and unsustainable.”

“High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective homebuyers,” Jerry Konter, chairman of the National Association of Home Builders, said this week.

“Policymakers must address this worsening housing affordability crisis.”

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30-year fixed-rate mortgages

The average rate on a 30-year fixed mortgage hit 6.94% this week, up from 6.92% a week earlier, mortgage finance giant Freddie Mac reported on Thursday. A year ago at this time, the 30-year rate averaged 3.09%.

While the latest rate increase was more moderate than in previous weeks, borrowing costs are still at a 20-year high and getting worse.

“The 30-year fixed-rate mortgage continues to remain just shy of 7% and is adversely impacting the housing market in the form of declining demand,” says Sam Khater, Freddie Mac’s chief economist.

“Additionally, homebuilder confidence has dropped to half what it was just six months ago and construction, particularly single-family residential construction, continues to slow down.”

15-year fixed-rate mortgages

The rate on a 15-year fixed mortgage is averaging 6.23%, up from 6.09% last week, Freddie Mac says. A year ago at this time, the 15-year rate was averaging 2.33%.

Since then, buyers have lost significant buying power — and many have had to adjust their budgets or put their searches on hold.

Faced with fewer buyers, sellers are no longer able to call all the shots.

“Among recently sold properties that were on the market for more than a month, sellers had to drop prices by 12% on average,” says Nadia Evangelou, senior economist for the National Association of Realtors.

Read more: Did you buy a house before 2022? If the answer is ‘no,’ you will likely be on the wrong end of financial inequality over the next decade — here’s why

5-year adjustable-rate mortgage

The increasingly popular five-year adjustable-rate mortgage (ARM) averaged 5.71% this week, down from 5.81% a week earlier.

A year ago at this time, these adjustable mortgages averaged 2.54%.

This week’s rate dip is likely to fuel even more demand for the five-year ARM, which comes with a fixed rate for the first five years and then adjusts up or down based on a benchmark like the prime rate.

Buyers have been scooping up adjustable-rate mortgages at a rate not seen since the Great Recession, betting they’ll have an opportunity to refinance into a lower, fixed-rate mortgage before their ARM adjusts.

Mortgage rates could be at a ‘new normal’

Rates have been steadily increasing this year amid actions by the Federal Reserve to tamp down decades-high inflation — despite the pain it’s causing consumers.

Today’s rates could be considered “the new normal,” says Evangelou.

She points out that 7% rates were typical in the mid-to-late 1990s and early 2000s. Yet homeownership then was higher than it is now.

“Today’s potential buyers also have to deal with higher inflation,” Evangelou says. “While inflation outpaces wage growth, the typical family needs to stretch out its budget and spend more than 25% of its income on its mortgage payment.

“Including other expenses such as mortgage insurance, home insurance, taxes and expenses for property maintenance, home buying costs exceed 30% of a typical family’s income.”

Mortgage applications this week

Mortgage applications fell 4.5% week over week, according to the latest report from the Mortgage Bankers Association (MBA).

“The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market,” says Joel Kan, the MBA’s vice president and deputy chief economist.

“Residential housing activity ranging from housing starts to home sales have been on downward trends coinciding with the rise in rates.”

Applications to refinance existing loans fell 7% from a week earlier and were 86% lower than last year. The refi share of mortgage activity fell to 28.3%, down from 29% the previous week.

Mortgage applications to purchase homes were down 4% this week — and were 38% lower than the same week a year ago.

“With rates at these high levels, the ARM share rose to 12.8% of all applications, which was the highest share since March 2008,” Kan says.

“ARM loans continue to remain a viable option for borrowers who are still trying to find ways to reduce their monthly payments.”

What to read next

  • Should I wait for the housing market to plummet before buying a house? 3 reasons why this housing downturn is nothing like 2008

  • ‘It was tough, scary times’: Baby-boomer financial experts who lived through the Great Inflation recount ways to ride out a recession

  • Here’s how much the average American 60-year-old holds in retirement savings — how does your nest egg compare?

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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Business

‘We’re seeing buyers backing out’: This dramatic chart reveals U-turn in the housing market as sellers slash home prices

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Here’s a chart that speaks a thousand words about the state of the real-estate market right now.

The chart above, part of a new report by real-estate brokerage Redfin
RDFN,
-7.03%
on the property market, reveals how home sellers are adjusting to the new normal of 7% mortgage rates.

The chart says that 7.9% of homes for sale on the market each week had their prices slashed — and that’s a record high.

That’s compared to just 4% of homes having their prices reduced each week over the same period a year ago.

Redfin’s data goes back to 2015. The company averaged out the share of listings which saw a price cut over four weeks, to smoothen out any outliers.

Taylor Marr, deputy chief economist at Redfin, added that looking over a bigger time period, i.e. a month, the company’s data shows that a quarter of homes right now are dropping prices.

“We have never been this high,” Marr told MarketWatch in an interview.

Unlike buyers, who are much more sensitive to rising mortgage rates, “sellers are just slow to react to the changes in demand… they set prices based on where they think the market is [and] are often reluctant to set their prices too low,” Marr said.

So for sellers, prices are a little stickier, he added, and slower to come down.

But even if it took a while, it’s finally happening.

After all, mortgage rates are at multi-decade highs, with the 30-year trending steadily above 7% as of Friday afternoon, according to Mortgage News Daily. And that’s likely to go up even more, as the 10-year Treasury note
TMUBMUSD10Y,
4.023%,
is trending above 4%.

Meanwhile, Redfin said that the median home on the market was listed at over $367,000, up 7% over last year.

The monthly mortgage for that home at the current interest rate of 6.92%, according to Freddie Mac, is $2,559.

A year ago, when rates were at 3.05%, that monthly payment would’ve been just $1,698.

Two tips for home buyers struggling with high mortgage rates

Sellers are dropping their prices by 4 to 5% on average, Marr said.

“You would almost expect it to be a lot worse,” he added, given how quickly rates rose and eroded buying power.

But buyers and sellers are also using two different tactics to get some relief on mortgage rates, Marr said.

One, sellers are reaching out to buyers and offering concessions to buy mortgage rates down.

In other words, sellers are asking buyers to pay the full asking price, but proposing to use part of that as a concession to get buyers a lower interest rate on their mortgage.

“Which is essentially a price drop,” Marr said, “it’s the same thing … but it doesn’t necessarily show up in the data.” And it’s hard to get a sense of the magnitude of how this is playing out, he added.

How it works is as such, Marr explained: If a buyer is putting down $100,000 for a 20% downpayment on their home at a 6.5% interest rate, they can instead allocate 10% for the downpayment, and spend the rest of the $50,000 buying down the mortgage rate to 5%.

“5% isn’t very bad, and it might seem like a lot of money, but … chances are you’re going to be incentivized to refinance [in the future] and you’ll have to pay the closing cost on that loan to refinance, which could be upwards of 15 grand,” Marr added.

Buyers are also switching to adjustable-rate mortgages, which offer lower interest rates at the start of the term. ARMs are nearly 12% of overall mortgage applications, the Mortgage Bankers Association noted on Wednesday, which is high.

Where prices are falling

As to where prices are falling, a couple of places stood out to Redfin.

They said that home prices fell 3% year-over-year in Oakland, Calif., and 2% in San Francisco. New Orleans also saw a 2% drop.

“Even in Atlanta, or Orlando, we’re seeing buyers backing out,” Marr observed.

So with the backdrop of sellers finally dropping listing prices, if you’re a buyer right now, don’t be spooked by rising rates and stop looking, he advised.

“There have been opportunities when rates really came down and gave buyers the moment to jump back in and get some good deals on homes that did drop their prices,” he said.

Plus, “it doesn’t hurt to make a low ball offer,” Marr added. “Some sellers are desperate, and that can be a good strategy … we’ve heard from some of our own agents that some buyers are getting incredible deals right now.”

But if you need to rent for a year and wait for things to calm down, then do that, Marr said, and bulk up those savings for that dream home.

Got thoughts on the housing market? Write to MarketWatch reporter Aarthi Swaminathan at aarthi@marketwatch.com

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