Prospective homebuyers are facing more hurdles to jump through as the average 30-year fixed mortgage rate climbed to 7.3% this month. Freddie Mac reported the increase from 7.19% to 7.31%, which is the highest average long-term interest rate in 23 years. In 2022, the average rate was 6.7%. The average rate for 15-year home loans also increased from 6.54% to 6.72%.

“The 30-year fixed-rate mortgage has hit the highest level since the year 2000,” Sam Khater, Freddie Mac’s chief economist, said. “However, unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory. These headwinds are causing both buyers and sellers to hold out for better circumstances.”

The interest rate hikes are a part of the U.S. Federal Government’s objective to lower inflation. But unfortunately, they are affirming that major change is not imminent. Fed Chair Jerome Powell commented, “…the process of getting inflation sustainably down to 2% has a long way to go.”

Two years ago, the interest rates were half the current amount, causing current homeowners to stay in their locked-in rates and avoid listing their homes for sale. These combined factors have led to a decrease in total mortgage application volume as well as home inventory lows.

Mortgage application volumes fell 1.3% last week, which is now 25.5% lower than the same week one year ago according to the Mortgage Bankers Association. On the home inventory front, typically the number hovers between 2 and 2.5 million with an all-time high of 4 million listings. However, Redfin recently shared the latest report in August of 2023 at 1.5 million listings – showing a 17.7% drop year over year.

“Today’s potential buyers are facing an unprecedented dynamic of a historically low supply of homes for sale, coupled with both rising interest rates and rising prices,” the Diana Olick with CNBC reported. “Higher interest rates historically throw cold water on home prices, but the supply and demand imbalance is so severe that it is pushing prices higher even though more and more buyers are unable to afford a home.”

For the foreseeable future, homebuyers should expect to see home prices remain high for the average in addition to the interest rate hikes. With fewer homes available on the market, some families are turning to newly built homes as an option. Yahoo Finance said that in September, 32% of builders reduced their home prices to instigate activity in the real estate market.

Since economists are predicting that high interest rates are here to stay, buyers and sellers shouldn’t expect any major changes in the real estate market anytime soon.