Mortgage rates soared to more than 6 percent this week, their highest point since late 2008 and more than double their level a year ago, putting more pressure on potential homebuyers’ budgets.
The average 30-year fixed-rate mortgage rate was 6.02 percent as of Thursday, I mentioned Freddy Mac, up from 5.89 percent in the previous week. The similar loan rate averaged 2.86% in the same week of 2021.
“Mortgage rates have continued to rise in tandem with higher-than-expected inflation numbers this week,” Sam Khater, chief economist at Freddie Mac, said in a statement, adding that the rate hike would help cool the raging housing market, but the number of homes for sale was not. Still not enough to meet demand. “This indicates that while house price declines are likely to continue, they should not be significant,” he said.
Interest rates have been on the rise since the beginning of the year as the Federal Reserve confirmed its commitment to raise its key interest rate to curb rising consumer prices. With inflation remaining stubbornly high In August, the Fed is expected to raise the federal funds rate again when it meets next week.
Mortgage rates do not directly follow the Fed’s prime rate, as credit cards do, but are influenced by it. Instead, they tend to track the yield on 10-year Treasuries, which are driven by inflation expectations and expectations about the Fed’s actions.
The rate on the most popular mortgage, the 30-year fixed rate mortgage, may seem particularly high given its recent history — the rate was 3.72 percent at the start of 2020, and it has spent most of the past two years below 3 percent.
However, from a longer perspective, rates have averaged about 7.8 percent over the past half century, according to Freddie Mac, who began tracking borrowing costs in 1971.
But the combination of rising mortgage rates and already high home prices has curtailed what potential home buyers can afford, slashing demand dramatically.
Mortgage applications were largely flat for the week ending September 9, up 0.2 percent from the previous week, according to Data from the Mortgage Bankers Association. But orders are down nearly 29 percent compared to last year.
Demand for refinancing has also fallen: Home loan refinancing requests are down about 4 percent from last week, but down 83 percent from the same week a year earlier.
Salma HeibD., chief economist at CoreLogic, a real estate data analytics company, said home sales are down 13 percent year-to-date.
“Further increases in mortgage rates, above 6 percent, over a 30-year fixed rate mortgage, will exacerbate affordability challenges.”
She said home price growth has also slowed, but the current “recalibration” is a positive outcome for higher rates. “All of these were the intended consequences of tightening financial conditions and implying healthier housing markets going forward,” Ms Hebb said.
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