US mortgage rates rose even higher this week, hitting 7.49% and pushing home ownership further out of reach for homebuyers.
That’s it from 7.31% in the previous week, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed rate was 6.66%.
“Many factors, including changes in inflation, the job market and uncertainty surrounding the Federal Reserve’s next move, are contributing to the highest mortgage rates in a generation,” said Sam Kader, chief economist at Freddie Mac. “Unsurprisingly, this is holding back demand from homebuyers.”
During this time mortgage rates have increased The Federal Reserve’s historic campaign to contain inflation. The central bank has indicated that it may keep rates high for a long time due to stubborn inflation. That has pushed up the 10-year Treasury yield, a key benchmark for mortgage rates.
The added cost of financing a mortgage has pushed home prices higher due to a historically low inventory of homes for sale, sending housing affordability to its lowest level in decades. As a result, the pace of home sales is lagging 20% from last year, according to the National Association of Realtors.
The average mortgage rate is based on the mortgage applications Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers with excellent credit who put 20% down.
The housing market is stagnating
Prospective buyers are remarkably interest rate sensitive, Usually exits the market when rates rise.
Mortgage rates continue to fall in the housing market to a 23-year low, said Bob Brockschmidt, president and CEO of the Mortgage Bankers Association.
“Purchase applications fell again last week, falling to the lowest level since 1995,” he said. “Despite the recent rise in rates, we still expect the 30-year fixed-rate mortgage to decline by the end of the year, providing some relief for prospective homebuyers heading into 2024.”
Homebuyers bow out With mortgage rates near 20-year highs in the housing market, homeowners are still reluctant to put their homes on the market, adding to the already-available housing shortage.
According to mortgage data firm Black Knight, 90% of homeowners have mortgage rates below 6%, and many good deals are less. They are not interested in trading low prices for today’s high prices.
Housing, meanwhile, continues to be very challenging For multiple buyers. Prices may rise as house hunters compete for more than a few homes listed on the market.
“As pending home sales and new home sales decline, buyer activity is showing sluggishness, rising home listing prices and shorter days spent on the market mean home buyers are competing for limited inventory,” said Realtor.com economist Jiayi Xu.
Although the central bank does not directly set the interest rates borrowers pay on mortgages, its actions affect them.
Mortgage rates tend to track yields on 10-year US Treasuries, which move based on a combination of expectations about Fed actions, what the Fed actually does and investors’ reactions. As Treasury yields rise, so do mortgage rates; When they fall, mortgage rates tend to follow.
The 10-year Treasury yield hit 4.80% on Tuesday – its highest level since 2007 – as inflationary pressures persist and the central bank continues its battle to cool the economy.
“We expect mortgage rates to remain above the 7% range for a long time,” Chu said.
All eyes are now on the Bureau of Labor Statistics’ September jobs report due out on Friday.
Federal Reserve Chairman Jerome Powell emphasized the important role a strong labor market plays in the central bank’s interest rate decisions.
“At the September FOMC meeting, the central bank forecast an unemployment rate of 3.8% for 2023, up from 4.1% in June,” Xu said. “The upcoming September jobs report will tell us whether the economy is in line with forecasts and will be of significant importance in clarifying the path forward.”
Analysts say mortgage rates could fall if job prospects show some weakness. However, if the jobs report is strong, expect rates to rise further.
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