In a further blow to potential homebuyers already grappling with a fiercely competitive housing market characterized by a shortage of available homes, the average long-term US mortgage rate has surged to its highest point in more than two decades.
This development could spell trouble for those looking to enter the real estate market, with rising rates adding to the financial burden of purchasing a home.
Surging US Mortgage Rates Reach Two-Decade High
Freddie Mac, a key player in the mortgage industry, announced on Thursday that the average rate for the benchmark 30-year home loan has risen to 7.09%, up from 6.96% just the week before. Notably, this rate is substantially higher than the 5.13% average rate recorded a year ago.
This continuous increase marks the fourth consecutive weekly uptick in the average rate, reaching its peak since the early months of 2002 when it reached 7.13%. The last time rates surpassed the 7% mark was in November, registering at 7.08%.
For potential homebuyers, these higher rates translate into hundreds of additional dollars in monthly costs, which can significantly restrict their purchasing power in a market already plagued by unaffordability for many Americans.
Lisa Sturtevant, the chief economist for Bright MLS, cautioned that if the 7% mortgage rate threshold is crossed again, it could trigger a substantial contraction in the housing market this autumn, particularly considering the elevated prices observed in various markets compared to a year ago.
This surge in rates is linked to a significant rise in the 10-year Treasury yield, which has exceeded 4% this month and continues to climb.
This yield plays a pivotal role in determining mortgage rates, as lenders utilize it to set rates on various loans, including mortgages.
The yield’s current trajectory places it close to its 2007 levels and has been driven by bond traders reacting to robust US economic reports, contributing to concerns about inflation and influencing the Federal Reserve to maintain higher interest rates.
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Impact on Mortgage Rates and the Unfolding Housing Dilemma
High inflation has compelled the Federal Reserve to execute 11 benchmark interest rate hikes since March 2022, pushing the fed funds rate to its highest point in more than two decades.
While mortgage rates don’t necessarily mirror these hikes, they generally follow the trajectory of the 10-year Treasury note yield. Several factors, including expectations for future inflation and the global demand for US Treasuries, can influence home loan rates based on the Fed’s decisions on interest rates.
Compared to two years ago, when the average rate for a 30-year mortgage stood at a mere 2.86%, today’s rates are more than double, reflecting a stark shift. The prior ultra-low rates stimulated a surge in home sales and refinancing.
However, the current surge in rates is exacerbating the scarcity of available homes as homeowners who locked in lower borrowing costs a couple of years ago are now reluctant to sell and commit to higher rates for new properties.
This housing supply shortage is a significant factor contributing to a 23% decline in home sales during the first half of this year.
Additionally, the average rate on 15-year fixed-rate mortgages, popular among homeowners looking to refinance, rose to 6.46% from 6.34% last week. A year ago, it averaged 4.55%, according to Freddie Mac.
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