Mortgage rates rose again, surpassing the 6% mark and reaching their highest level since the fall of 2008.
The 30-year fixed-rate mortgage averaged 6.02% in the week ended Sept. 15, up from 5.89% the previous week, according to Freddie Mac. This is significantly higher than last year, which was 2.86%.
Very high inflation is driving up rates, said Freddie Mac Chief Economist Sam Khater.
“Mortgage rates continued to rise alongside warmer-than-expected inflation numbers this week, rising above 6% for the first time since late 2008,” he said.
After starting the year at 3.22%, mortgage rates rose significantly in the first half of the year, rising to nearly 6% in mid-June. But since then, concerns about the economy and the Federal Reserve’s role in combating inflation have become more volatile.
Rates fell in July and early August as recession fears took hold. But comments from Federal Reserve Chairman Jerome Powell and recent economic data have drawn investors’ attention to the central bank’s fight against inflation by raising rates.
The yield on the 10-year Treasury rose last week as the Fed prepared markets for further monetary tightening, said George Ratiu, manager of economic research at Realtor.com.
The Federal Reserve does not directly set the interest rates that borrowers pay on mortgages, but its actions do. The mortgage rate tracks the yield on the 10-year US Treasury bond. As investors see or anticipate rate hikes, they often sell government bonds, which sends yields higher and with it, mortgage rates.
Investors reacted to August’s inflation numbers, which showed that consumer prices were still rising at 1980s levels, Ratiu said.
“Core inflation continues to rise sharply, putting pressure on the Federal Reserve to maintain an aggressive stance on monetary tightening,” he said. “Markets are closely watching the central bank’s meeting next week, expecting another 75 basis point hike in the policy rate, if not a 100 basis point jump.”
As mortgage rates rise and home prices remain high, home sales slow.
With rates essentially doubling from a year ago, home loan applications are down and applications to refinance into a lower down payment have fallen off a cliff, down 83% from a year ago, according to the Mortgage Bankers Association.
“Higher mortgage rates … have helped put more homebuyers on the sidelines,” said Joel Kane, MBA’s associate vice president for economics and industry forecasting.
A year ago, a buyer who put 20% down on a $390,000 home and financed the remainder with a 30-year, fixed-rate mortgage at an average interest rate of 2.86% had a monthly mortgage payment of $1,292, according to Freddie’s estimates. Mac.
Today, a homeowner buying the same priced home at an average rate of 6.02% would pay $1,875 a month in principal and interest. That’s an extra $583 per month.
“With real median household incomes remaining relatively unchanged, many first-time buyers are finding that the door to home ownership is closed for this season,” Ratiu said.
He said that while borrowing costs are expected to continue to rise in the coming months, it is increasingly clear that house prices need to fall to bring housing markets back into balance.
“Many sellers are recognizing the change in market conditions and are responding by reducing their asking prices,” he said. “These changes are consistent with the time of year when buyers have historically found the best market conditions to find a bargain.”