US housing interest rates rise again, reaching close to 7%

Mortgage rates rose again this week in the US, stopping just below the 7% mark.

The 30-year fixed-rate mortgage averaged 6.94% in the week ending Oct. . A year ago, the 30-year fixed rate was 3.09%.

Mortgage rates have more than doubled since the beginning of this year as the Federal Reserve (Fed) pressed ahead with its unprecedented campaign to raise interest rates to tame rising inflation.

The combination of central bank rate hikes, investor concerns about a recession and mixed economic news have made mortgage rates increasingly volatile in recent months.

“The 30-year fixed-rate mortgage continues to be just shy of 7% and is negatively impacting the housing market in the form of declining demand,” said Sam Khater, chief economist at Freddie Mac.

Home sales have been falling month-on-month since February and are now the biggest drop in home sales since October 2007, during the subprime mortgage meltdown.

Rising interest takes a toll

The Fed’s aggressive rate hikes also affect the housing market.

While the Fed does not directly set the interest rates borrowers pay on mortgages, its actions do influence them. Mortgage rates tend to track the yield on 10-year US Treasuries.

As investors see or anticipate rate increases, they make moves that increase yields and mortgage rates also increase.

This week, the 10-year US Treasury hit a high not seen since 2008, an indication that mortgage rates could rise further.

The rising rates scared many homebuyers. Mortgage applications are now in their fourth month of decline, falling to the lowest level in 25 years, said Joel Kan, vice president and chief vice economist at the Mortgage Bankers Association.

“The speed and level to which rates have risen this year has greatly reduced refinancing activity and exacerbated existing affordability challenges in the shopping market,” he said.

“Residential housing activity, from new housing starts to home sales, has been trending downwards, coinciding with rising rates.”

Home orders are down 38% from last year and refinancing has dropped off a cliff, down 86% from last year, according to the MBA.

But inflation is still high, which means rates could rise even higher.

“With the next meeting two weeks away, the Fed will continue to take decisive action to bring prices back to a healthy level,” said Hannah Jones, economic data analyst at Realtor.com.

Accessibility remains a challenge

Higher mortgage rates are making it even more difficult for potential homebuyers to acquire a home.

“Consumers, builders and sellers have taken a step back to consider their best course of action given high mortgage rates and persistent inflation,” Jones said.

Homebuyer sentiment has hit its lowest level since 2011, according to Fannie Mae, and homebuilder sentiment has fallen for the 10th straight month this month as construction activity slows, according to a report by the Association. National House Builders.

Sellers are responding to the change in the market and reducing listing activity, resulting in a decrease in new listings compared to last year.

A year ago, a client who invested 20% in a $390,000 home and financed the rest with a 30-year fixed rate mortgage at an average interest rate of 3.09% had a monthly payment of $1,331, according to Freddie Mac calculations.

Today, a homeowner who buys the same home at an average rate of 6.94% would pay $2,063 a month in principal and interest. That’s $732 more each month.

The average mortgage rate is based on a survey of conventional home-buying loans for borrowers who have made a 20% down payment and have excellent credit, according to Freddie Mac. But many buyers who invest less money upfront or have less-than-perfect credit will pay more.

“While price growth has cooled and prices have started to fall, high and still rising mortgage rates mean that many of today’s buyers face higher home payments than they would have when home prices were at their peak,” he said. Jones.

“Buyers who can be flexible can get a deal this fall by focusing on affordable areas or taking advantage of market conditions and leveraging some bargaining power as homes stay on the market longer.”