Mortgage rates rise to nearly 6.3%, the highest level since 2008

Mortgage rates rose for the fifth consecutive week, climbing back above 6% amid yet another aggressive interest rate hike by the Federal Reserve.

According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.29% in the week ending September 22, down from 6.02% the previous week. It is significantly higher than this time last year, when it was 2.88%, and is the highest level seen since October 2008.

Mortgage rates have almost doubled since the beginning of this year. After rising to nearly 6% in mid-June, recession fears have made rates more volatile. But now all eyes are on the central bank’s interest rate hike campaign in its fight against inflation.

“The housing market continues to face headwinds as mortgage rates rise again this week,” said Sam Khater, Freddie Mac’s chief economist.

Due to the rise in rates, house prices began to decline and sales fell. But there is still a shortage of homes available for sale, which has kept home prices high.

“The rapid rate hike is definitely slowing the pace of sales and throwing cold water on what was a fast-paced residential real estate market just a few months ago,” said Marty Green, director of Polunsky Beitel Green, a consulting firm. “Where ‘inventory’ was the big concern in 2021 and early 2022, the current concern is ‘affordability’.”

On Wednesday, Federal Reserve Chairman Jerome Powell announced a third consecutive 75 basis point hike.

The Fed does not directly set the interest rates that borrowers pay on mortgages, but its actions affect them. Mortgage rates tend to follow the yield on 10-year US Treasuries. When investors see or anticipate rate hikes, they often sell government bonds, causing yields and mortgage rates to rise.

This week’s rate hike pushed 10-year Treasury yields to 3.5%, the highest level in more than a decade.

Rising rates put further pressure on those looking to save to buy a home.

“Consumers can expect to see rates on variable rate mortgages, credit cards, car and personal loans rise in the coming weeks,” said Ratiu. “For real estate markets, higher borrowing costs are the same remedy the Fed is prescribing to cool demand and depress overheated prices.”

While this slowdown may not yet be reflected in the inflation numbers, “there is no doubt that the Federal Reserve’s aggressive interest rate hikes are definitely cooling the housing market.”

But would-be buyers still face the most inaccessible housing market of the past 35 years, given the combined effect of stubbornly high house prices, soaring interest rates and lagging wage growth.

A year ago, a buyer who staked 20% on a $ 390,000 home and financed the rest with a 30-year fixed-rate mortgage at an average interest rate of 2.88% had a monthly mortgage payment. of $ 1,295, as calculated by Freddie Mac.

Today, a homeowner who buys a home at the same price with an average rate of 6.29% would pay $ 1,929 per month in principal and interest. That’s $ 634 more every month.

Powell said earlier this summer that the housing market is in a complicated situation where home prices could still rise even as mortgage rates rise.

“I would say that if you are a home buyer or a young man looking to buy a house, you need a bit of a makeover,” Powell said at a June Fed meeting. “We have to go back to a point where supply and demand are back together and inflation is low again and mortgage rates are low again.”

At this week’s meeting, Powell said housing prices were climbing to an unsustainable level. The “reset,” he said, should help bring prices closer to rents and other property market fundamentals.

“This is a good thing,” Powell said. “In the long run, what we need is for supply and demand to be better aligned so that house prices rise sensibly and people can afford houses again.

Additional reports provided by Nicole Goodkind.

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