As U.S. mortgage interest rates soar to a 22-year high, real estate agents launch a 1% down payment plan

This week, the average interest rate on a 30-year fixed-rate loan in the United States was 7.23%, the highest level since May 2001. Zillow, an American Internet real estate agency, has begun offering mortgage loan products with a down payment of as little as 1% in an attempt to attract homebuyers facing the most unaffordable market in nearly four decades.

With U.S. housing mortgage interest rates hitting a 22-year high, climbing above 7%, the U.S. real estate market is facing the risk of a rapid freeze.

On Thursday, August 24, US real estate agency Zillow began offering mortgage loan products with a down payment of only 1%, in an attempt to attract homebuyers facing the most unaffordable market in nearly four decades.

According to a statement from the company, Zillow’s 1% down payment plan is even lower than the 3% down payment plan offered by Freddie Mac. Zillow will help homebuyers pay another 2% down payment at the time of closing.

U.S. mortgage rates hit a 22-year high on Thursday, further increasing pressure on potential homebuyers. Freddie Mac said in a statement Thursday that the average interest rate on a 30-year fixed-rate loan was 7.23%, the highest level since May 2001 and up from 7.09% last week.

Some analysts believe that Zillow launched the 1% down payment plan to expand its customer base and possibly "establish a level playing field with larger competitors." However, this may harm the company's profit margins, and paying a 2% down payment at the time of closing may be costly in the long run.

Zillow is piloting the new program in Arizona first before expanding to other locations. The company stopped similar home trading operations in 2021 after suffering heavy losses.

Now, American homebuyers are approaching the most unaffordable market in four decades. Mortgage rates have doubled since the start of last year, leaving existing homeowners unable to move and put their properties up for sale. Sam Khater, chief economist at Freddie Mac, said home prices are climbing as determined buyers are forced to compete for "woefully low" listings.

The National Association of Realtors said an inventory shortage caused the pace of second-hand home purchases last month to fall to its slowest level since early this year. U.S. government data on Wednesday showed that contracts to buy new homes rose to their highest level in more than a year as there were few listings on the resale market. Some of the largest builders are able to offer better mortgage rates than banks.