US Long-Term Mortgage Rate Soars to 7.09%, Reaches Over 20-Year High
The average long-term mortgage rate in the United States rose this week to its highest level in more than 20 years, adding to the difficulties faced by would-be homebuyers in an already competitive housing market.
According to Freddie Mac, the average rate on the benchmark 30-year home loan rose to 7.09% on Thursday, up from 6.96% the previous week. The rate averaged 5.13% a year ago.
It is the average rate’s fourth consecutive weekly increase and the highest since early April 2002, when it averaged 7.13%. The last time the average rate was higher than 7% was in November of last year, when it stood at 7.08%.
High-interest rates can add hundreds of dollars to borrowers’ monthly costs, limiting how much they can afford in a market that is already unaffordable for many Americans.
“With prices even higher than they were a year ago in many markets, crossing the 7% mortgage rate threshold again could be what sets in motion a major contraction in the housing market this fall,” said Lisa Sturtevant, chief economist for Bright MLS.
Rising Yields, Inflation, and Housing Market Dynamics: Impact on Mortgage Rates and Home Sales
The latest rate hike comes on the heels of a sharp increase in the 10-year Treasury yield, which has risen above 4% this month and continues to rise. The yield, which lenders use to price mortgages and other loans, reached its highest level since October on Thursday morning, and it is now close to where it was in 2007.
The yield has risen as bond traders react to more reports indicating that the United States economy remains remarkably resilient, which could keep inflation pressures high, giving the Federal Reserve reason to keep interest rates higher for longer.
“The economy continues to do better than expected, and the 10-year Treasury yield has moved up, causing mortgage rates to climb,” said Sam Khater, Freddie Mac’s chief economist. “Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales.”
High inflation prompted the Federal Reserve to raise its benchmark interest rate 11 times since March 2022, raising the fed funds rate to its highest level in 22 years.
Mortgage rates tend to track the yield on the 10-year Treasury note rather than the Fed’s rate increases. Investors’ expectations for future inflation, global demand for US Treasury bonds, and what the Fed does with interest rates can all have an impact on mortgage rates.
The average 30-year mortgage rate is still more than double what it was two years ago when it was only 2.86%. These extremely low interest rates prompted a surge in home sales and refinancing.
As a result of the sharply increased rates, homeowners who locked in lower borrowing costs two years ago are reluctant to sell and purchase a new home at a higher interest rate.
The lack of housing supply is also a big reason why home sales are down 23% through the first half of this year.
The average rate on 15-year fixed-rate mortgages, which are popular with homeowners who are refinancing, increased to 6.46 percent from 6.3 percent last week. Freddie Mac reported that it averaged 4.55% a year ago.
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Source: abc NEWS
