Mortgage rates rose to 7.49%, hurting home sales

Washington, DC
CNN
—

US mortgage interest rates rose this week, hitting 7.49%, putting homeownership out of reach for potential homebuyers.

This is up From 7.31% the previous weekAccording to Freddie Mac data released Thursday. A year ago, the 30-year fixed rate was 6.66%.

“Several factors, including shifts in inflation, the labor market and uncertainty about the Fed’s next move, are contributing to pushing mortgage rates to their highest levels in a generation,” said Sam Khater, chief economist at Freddie Mac. “Not surprisingly, this has dampened demand for homebuyers.”

Mortgage rates rose during The Federal Reserve’s historic campaign to curb inflation. The central bank has indicated that it may keep interest rates high for longer, due to stubborn inflation. This has pushed up the 10-year Treasury yield, a key benchmark for mortgage rates.

The additional cost of mortgage financing, coupled with rising home prices due to historically low inventory of homes for sale, has reduced housing affordability to its lowest level in several decades. The result is a pace of home sales that is more than 20% slower than last year at this time of year, according to the National Association of Realtors.

The average mortgage rate is based on the mortgage applications Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put down 20% and have excellent credit.

The housing market remains stuck

Potential buyers were remarkably sensitive to interest rates, Typically, withdrawal from the market occurs when prices rise.

Mortgage rates at 23-year highs continue to put pressure on the housing market, said Bob Broeksmit, president and CEO of the Mortgage Bankers Association.

He added, “Purchase orders fell again last week, reaching their lowest level since 1995.” “Despite the recent jump in interest rates, we still expect the 30-year fixed-rate mortgage to decline before the end of the year, providing some relief to potential homebuyers heading into 2024.”

With home buyers withdrawing With interest rates on the housing market falling and mortgage rates approaching 20-year highs, homeowners have become less likely to put their homes on the market, exacerbating an already short supply of available housing.

More than 90% of homeowners have mortgage rates below 6%, according to Black Knight, a mortgage data company, and many are much lower. They are not interested in trading their lower prices for today’s higher prices.

The affordability of the home, at the same time, It’s still a big challenge For many buyers. Prices can rise as home hunters compete for the few homes listed on the market.

“While lower pending home sales and new home sales indicate a slowdown in buyer activity, higher home listing prices and shorter days on market indicate that homebuyers are competing for limited inventory,” said Jiayi Xu, economist at Realtor.com.

Although the Fed does not directly set the interest rates borrowers pay on mortgages, its actions affect them.

Mortgage rates tend to track the yield on 10-year US Treasury bonds, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does, and investors’ reactions. When Treasury yields rise, so do mortgage rates; When they fall, mortgage rates tend to follow.

The 10-year Treasury yield reached 4.80% on Tuesday — its highest level since 2007 — as inflation pressures persist and the Federal Reserve continues its battle to cool the economy.

“We expect mortgage rates to remain above the 7% threshold for an extended period,” Shaw said.

All eyes are now on the September jobs report from the Bureau of Labor Statistics, which is scheduled to be released on Friday.

Federal Reserve Chairman Jerome Powell emphasized the pivotal role that a strong labor market plays in the Fed’s interest rate decisions.

“It is worth noting that at the September FOMC meeting, the Fed forecast an unemployment rate of 3.8% for 2023, down from 4.1% in June,” Shaw said. “The upcoming September jobs report will tell us whether the economy is in line with expectations and holds great importance in clarifying the path forward.”

Analysts say that if job numbers show some weakness, mortgage rates could decline. However, if the jobs report is strong, interest rates are expected to rise further.