(CNN) -- After taking a breather last week, mortgage rates rose again -- moving even closer to 7%.

The 30-year fixed-rate mortgage averaged 6.92% in the week ending October 13, up from 6.66% the week before, according to Freddie Mac. It is the highest average rate since April 2002. A year ago, the 30-year fixed rate stood at 3.05%.

Mortgage rates have more than doubled in the past year as the Federal Reserve pushed ahead with its unprecedented campaign of hiking interest rates in order to tame soaring inflation. The combination of the central bank's rate hikes, investor's concerns about a recession and mixed economic news has made mortgage rates volatile over the past several months.

"We continue to see a tale of two economies in the data," said Sam Khater, Freddie Mac's chief economist. "Strong job and wage growth are keeping consumers' balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously."

He said the next several months will undoubtedly be important for the economy and the housing market. Already, home sales are dropping and prices are cooling.

The average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put 20% down and have excellent credit, according to Freddie Mac. But many buyers who put down less money up front or have less than perfect credit will pay more.

 

Inflation still running hot

 

The Fed's efforts to curb inflation are having a profound impact on the mortgage market. But inflation is still higher than expected, suggesting the central bank will continue to aggressively raise interest rates.

The Fed does not set the interest rates borrowers pay on mortgages directly, but its actions influence them. 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.

"Investors and lenders are reacting to inflation still running at a hot pace, posing significant concerns for the economy and consumers," said George Ratiu, senior economist and manager of economic research at Realtor.com.

As a result of the higher rates, more prospective buyers have dropped out of the market causing home prices to soften and sales to decrease. But there is still a shortage of available homes for sale in relation to buyer demand, which has kept prices strong.

"The consequences are evident in rent growth and high home prices," said Lawrence Yun, chief economist for the National Association of Realtors. "Even with an anticipated fall in home prices in some markets -- principally in California -- homes will continue to be unaffordable, while rents are squeezing non-owners."

Yun said even with an economic recession looming, the Federal Reserve is unlikely to let up on its aggressive monetary policy of raising interest rates.

"The 10-year Treasury yield broke past 4% this morning, and mortgage rates will be fighting to hold at a 7% average rate in the upcoming weeks," said Yun.

With fewer people looking for a mortgage to purchase or refinance a home and an uncertain economic picture ahead, credit is getting harder to come by, said Bob Broeksmit, president and CEO of the Mortgage Bankers Association.

"We have seen credit tighten as both lenders and borrowers grapple with ongoing economic uncertainty and affordability challenges," he said. "Despite strong wage and job growth in September, prospective homebuyers remain reluctant to jump into the housing market."

 

Affordability still challenging for homebuyers

 

Higher mortgage rates are making it even harder for prospective buyers to afford a home.

"With incomes lagging behind inflation, homebuyers' ability to finance a purchase has been slashed by mortgage rates which surged from 3.1% at the start of 2022 to almost 7%," said Ratiu.

For a family earning the median household income of $71,000 and using a 20% down payment, a typical home purchase budget was $448,700 in January of this year, according to Realtor.com. This week, the same family could only afford a $339,200 home.

And monthly payments have gone up considerably.

A year ago, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year, fixed-rate mortgage at an average interest rate of 3.05% had a monthly mortgage payment of $1,324, according to calculations from Freddie Mac.

Today, a homeowner buying the same-priced house with an average rate of 6.92% would pay $2,059 a month in principal and interest. That's $735 more each month.

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