The average long-term mortgage index in the United States rose this week to its highest level in more than 20 years, in grim news for aspiring homebuyers already grappling with a housing market that remains competitive due to to the shortage of houses for sale.
Mortgage buyer Freddie Mac said Thursday that the benchmark 30-year home loan average index rose to 7.09 percent from 6.96 percent last week. A year ago, the average rate was 5.13 percent.
This is the fourth consecutive weekly increase in the average index and the highest since early April 2002, when it averaged 7.13 percent. The last time the average index exceeded seven percent was last November, when it stood at 7.08 percent.
High rates can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford in a market already unaffordable for many Americans.
“With prices still higher than a year ago in many markets, crossing the 7 percent mortgage rate threshold again could be what kick-starts a major housing market contraction this fall,” said Lisa Sturtevant. , Bright MLS Chief Economist.
The latest rate hike follows a sharp rebound in the 10-year Treasury yield, which has topped 4 percent this month and is still rising. The yield, which lenders use to price mortgages and other loans, hit its highest level since October Thursday morning, and is close to where it was in 2007.
The yield has been rising as bond traders react to more reports showing the US economy remains remarkably resilient, which could keep upward pressure on inflation, giving the Federal Reserve reason to hold higher interest rates for longer.
“The economy continues to perform better than expected and the 10-year Treasury yield has risen, causing mortgage rates to rise,” said Sam Khater, chief economist at Freddie Mac. “Demand has been affected by winds in against affordability, but low inventory remains the leading cause of stagnant home sales.”
High inflation prompted the Federal Reserve to raise its benchmark interest rate 11 times since March 2022, raising the federal funds rate to the highest level in 22 years.
Mortgage rates do not necessarily reflect Federal Reserve rate increases, but rather tend to track the yield of the 10-year Treasury note. Investor expectations about future inflation, global demand for US Treasuries, and what the Federal Reserve does with interest rates can influence mortgage loan rates.
The average rate on a 30-year mortgage is still more than double what it was two years ago, when it was just 2.86 percent. Those ultra-low rates spurred a surge in home sales and refinances. Now sharply rising rates are contributing to the shortage of available homes, as homeowners who clung to those lower borrowing costs two years ago are now reluctant to sell and jump at a higher interest rate. in a new property.
The lack of housing supply is also one of the main reasons why home sales are down 23 percent in the first half of this year.
The average index for 15-year fixed-rate mortgages, popular with home refinancers, rose to 6.46 percent from 6.34 percent last week. A year ago, the average was 4.55 percent, according to Freddie Mac.
