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

The 30-year mortgage averaged 6.29% in the week ending September 22, up from 6.02% the previous week, according to Freddie Mac. That’s significantly higher than this time last year, when it was 2.88%, the highest level seen since October 2008.

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

“The housing market continues to face headwinds with mortgage rates rising again this week,” said Sam Khater, chief economist at Freddy Mac.

As a result of the price hike, home prices began to fall and sales fell. But there is still a shortage of homes available for sale, which has led to higher house prices.

“The rapid rise in rates is definitely slowing the pace of sales and throwing cold water on what was an overheated residential real estate market just a few months ago,” said Marty Green, director of the Polonsky Beetle Green law firm that represents mortgage companies. Where ‘inventory’ was the biggest concern in 2021 and early 2022, the concern today is ‘affordability’.

It appears that the rate hike by the Federal Reserve has had an effect

On Wednesday, Federal Reserve Chairman Jerome Powell announced a 75 basis point increase for the third time in a row.

The Federal Reserve does not directly determine the interest rates that borrowers pay on mortgages, but its actions affect them. Mortgage rates tend to track the yield on 10-year US Treasuries. As investors see or expect interest rates to rise, they often sell government bonds, which leads to higher yields and higher mortgage rates.

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

The price increase puts additional pressure on those trying to save for a home.

“Consumers can expect an increase in the rates for adjustable mortgages, credit cards, auto loans and personal loans in the next few weeks,” Ratio said. “For housing markets, higher borrowing costs are the very treatment the Fed is prescribing in order to calm demand and bring down overheated prices.”

While this slowdown may not be reflected in the inflation figuresAnd the “There is no doubt that the Fed’s large rate increases are certainly calming the residential real estate market.”

But potential buyers still faced the worst unaffordable housing markets in 35 years, given the combined effect of stubbornly high home prices, rising interest rates and slowing wage growth.

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

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

Powell is still looking for a “reset” in housing

Powell said earlier this summer that the housing market is in a complex situation as home prices could continue to rise even though mortgage rates are also rising.

“I would say if you’re a home buyer, or a young person looking to buy a home, you need to reset,” Powell said during a June Federal Reserve meeting. “We need to get back to a place where supply and demand are back together and where inflation is down again and mortgage rates are down again.”

At this week’s meeting, Powell said home prices were rising at an unsustainable rapid level. He said the “reset” should help bring prices closer to rents and other housing market fundamentals.

“That’s a good thing,” Powell said. “In the long term, what we need is for supply and demand to align better so that home prices rise reasonably and people can buy homes again.”

Nicole Goodkind contributed additional reporting.

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