Mortgage rates have reached their highest point in 21 years.
Mortgage rates in the United States rose this week to their highest level in 21 years.
According to Freddie Mac statistics issued Thursday, the 30-year fixed-rate mortgage averaged 7.09% in the week ending August 17, up from 6.96% the previous week. The 30-year fixed-rate mortgage was 5.13% a year ago.
Since the end of May, rates have been above 6.5% and have been rising since mid-July. Rates were last above 7% in November of last year, when they reached 7.08%. The average 30-year fixed-rate mortgage rate this week is the highest since April 2002, when it was 7.13%.
Mortgage rates have skyrocketed amid the Federal Reserve’s historic rate hike campaign, causing house affordability to plummet to its lowest level in decades. Buying a property is becoming more expensive due to the additional cost of financing the mortgage, while homeowners who previously locked in cheaper interest rates are hesitant to sell. The combination of low availability and high prices has squeezed would-be purchasers, resulting in 20% lower house sales than a year earlier.
According to Sam Khater, Freddie Mac’s senior economist, the economy is performing better than projected, and the 10-year Treasury yield has risen, forcing mortgage rates to rise. Affordability issues have influenced demand, but low inventory remains the core cause of stalled house sales.
The average mortgage rate is calculated using mortgage applications received by Freddie Mac from thousands of lenders around the country. The poll only covers borrowers who put down 20% and have outstanding credit.
Concerns about inflation persist.
The rising average 30-year fixed-rate loan rate is tracking the trajectory of 10-year treasury rates, which just reached their highest level since the summer of 2007.
Treasuries rose as investors reacted to the release of the Federal Reserve’s meeting minutes on Wednesday, which revealed that members are concerned that inflation will remain elevated for longer according to George Ratiu, Chief Economist of Keeping Current Matters, a real estate market research and publishing organization, it will take longer than projected.
Following a three-year epidemic, the economy is still expanding, because of solid consumer spending and corporate investment, according to Ratiu. For most Americans, economic development implies more job stability and higher compensation.
The negative to the high wage rises, he noted, is that the Fed remains hawkish on the prognosis for managing inflation this year.
With the two inflation peaks of the late 1970s vividly in mind, the central bank remains committed to restoring price increases to the 2.0% objective, he added. Core inflation remains over 4.0%, implying that more rate rises are on the Fed’s monetary agenda.
While the Fed does not directly set mortgage interest rates, its activities have an impact on them. Mortgage rates tend to reflect the yield on 10-year US Treasuries, which fluctuate based on a mix of the Fed’s activities, what the Fed actually does, and investor reactions. When Treasury yields rise, mortgage rates tend to fall; when they fall, mortgage rates tend to rise.
Despite still high prices and high interest rates, July’s retail sales statistics revealed that consumer spending is increasing steadily as demand is driven by robust income growth, according to Jiayi Xu, an analyst at Realtor.com.
While these good economic statistics may alleviate concerns about an impending recession, it may also raise anxieties that interest rates will remain high for an extended length of time, she added.
Meanwhile, the Fed is proceeding gently to ensure that the impacts of previous rate rises are fully apparent.
As a result, the Fed may choose another ‘wait-and-see’ policy at its future meeting, perhaps mitigating the current higher trend of mortgage rates, according to Xu.
We anticipate continued high rates and home prices.
Home buyers can anticipate borrowing costs to remain high as long as the Fed is concerned about inflation, according to Ratiu
Bottom line: As rising mortgage rates are added to already high home prices, it will remain challenging for buyers to find affordable homes.
From the lowest rate of 2023, 6.09 percent in February, to this week’s rate of 7.09 percent, rates have increased by an entire percentage point this year for homebuyers. Rates have increased by nearly two percentage points since last year.
The monthly mortgage payment for a buyer of a median-priced home is now 17 percent higher because the current mortgage rate is 196 basis points higher than it was a year ago, when rates were 5 points 13 percent, according to Ratiu.
According to a recent Redfin study, more than 90% of homeowners with mortgages currently have rates of 6% or less, indicating that they are staying in their current homes rather than selling and moving up, which would result in higher borrowing costs. Due to this, there are incredibly few homes that are already built and for sale, which keeps prices high for those who are interested in purchasing.
A homeowner paying a monthly mortgage of $1,300 who made a 20% down payment on a median-priced home in January 2022 and a 31% interest rate will be paying about $1,300. According to Ratiu, the monthly mortgage payment for the same house at the current rate would be $2,300 before taxes and insurance.
High home prices can lessen the impact of rising mortgage rates for current homeowners who decide to sell. Over one-fourth of buyers are paying cash for their next home, which Ratiu said is not surprising given that equity is close to an all-time high.
First-time home buyers, however, face much more challenging market conditions than existing homeowners, who can use their home equity, which is close to an all-time high, to reduce the size of mortgage loans.
Additionally, potential first-time home buyers might not feel as pressured to complete their home purchase as they did when rents were rising at a double-digit rate, according to Realtor.com, as asking rents have declined for two consecutive months.
Although this may slow down sales churn, Xu said it also gives potential home buyers more time to carefully consider important choices that must be made when purchasing a home.