Mortgage Rates Have Reached Record High Levels: Is There An End In Sight?
Mortgage rates have hit 7% and it doesn't appear they are coming down anytime soon. The housing market is stagnating as a result
Mortgage rates have risen to their highest level in 20 years, passing the 7% mark and all but paralyzing the country’s housing market. According to Freddie Mac, the 30-year fixed rate mortgage averaged 7.08% in the week ending on October 27. That’s up from 6.94% the week before. A year ago it was only 3.14%. The last time the average surpassed the 7% mark was in April 2002.
The United States has seen an increase in mortgage rates almost every week since August. And these prices have more than doubled since the beginning of the year. The surge has been fueled by the Federal Reserve’s efforts to boost interest rates to tame inflation. Coupled with investors’ concerns about a recession and mixed economic news, the housing market has become increasingly volatile over the past several months.
Now, the rising mortgage rates are causing the already struggling housing market to stagnate. Speaking to CNN Business, Freddie Mac’s Chief Economist Sam Khater said as inflation endures, consumers are seeing higher costs at every turn, causing further declines in confidence. “Many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward,” he told the publication.
The average mortgage rate is based on a survey of conventional home purchase loans for borrowers who put 20% down and have excellent credit, Freddie Mac says. But most buyers who pay less money up front or have less than perfect credit will ultimately pay more. And while the Federal Reserve does not set the interest rates for housing directly, its actions do influence them.
Mortgage rates tend to track the yield on 10-year U.S Treasury bonds. When investors see or anticipate an increase in rates, their actions send yields higher and mortgage rates rise. This week the 10-year yield remained above 4%, a level last seen in 2008, CNN Business reports. Unfortunately, the Fed is expected to raise rates by 75 basis points for a fourth time at the conclusion of its policy meeting in the first two days of November.
Those actions, designed to stabilize the economy to curb price pressure, have weighed heavily on the interest-rate-sensitive housing sector. As a result, expectations for Federal Reserve tightening have led to a surge in Treasury yields. Sadly, the higher mortgage rates are making it even harder for prospective buyers to afford a home at all. Over the past year, rates have climbed nearly four percentage points and listing prices have increased 13.9%.
“That’s made the monthly payment on a median-priced home close to 75% higher today compared to a year ago,” Hannah Jones, an Economic Data Analyst at Realtor.com explained. “Due to the current mortgage rates, folks have become hamstrung by inflation and the rising cost of homes, which has led many to drop out of the market completely,” Jones said. She also pointed to the recent report on existing home sales, which dropped by 23.8% in September, marking the eighth consecutive month of slowing.
