Mortgage rates are rising again, driving more buyers out of the housing market

Mortgage rates are rising again, driving more buyers out of the housing market

The 30-year fixed-rate mortgage averaged 5.81% in the week ending June 23, up from 5.78% the week before, according to Freddie Mac.

This time last year, rates averaged 3.02%, and the last time rates were this high was in the winter of 2008.

“Fixed mortgage rates have increased by more than two full percentage points since the beginning of the year,” Sam Khater, chief economist at Freddie Mac, said in a statement. “The combination of higher prices and higher home prices is the likely driver of the recent declines in existing home sales. However, in reality, many potential homebuyers are still interested in buying a home, keeping the market competitive as it stabilizes in the last two years of red activity. hot “.

Despite the jumps, mortgage rates are still well below the historical high levels they’ve achieved over the past 40 years – notably the record rate of 18.63% in October 1981.

However, Abi Omodonby, associate vice president and chief economist at PNC Financial Services Group, said the severity of current mortgage rate increases combined with a rise in borrowing costs will ultimately make consumers more cautious.

“I think we’re likely to see further increases in mortgage rates over the rest of the year,” Omodonby said in an interview with CNN Business. “The Fed wants to see housing activity soften.”

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 10-year US Treasuries. But interest rates are indirectly affected by the Fed’s actions on inflation. As investors see or expect interest rates to rise, they often sell government bonds, driving up yields and with them mortgage rates.

During last week’s policy-making meeting, the Federal Reserve raised its benchmark interest rate by 75 basis points, the largest such increase in three decades. In public comments made since then, including in testimony to Congress, Federal Reserve Chair Jerome Powell said the central bank’s actions should help reduce demand in the country’s housing market, which has been very cold.

Home prices have risen over the past two years, in part due to record low mortgage rates, pandemic-related migration patterns, the impact of investment firms buying residential real estate, and the Federal Reserve’s purchase of mortgage bonds.

Rents and home prices continue to rise at double-digit rates in many areas.

“House prices should stop rising at such remarkably rapid rates,” Powell said Wednesday at a hearing before the Senate Banking Committee. “Since the start of the pandemic, we’ve had a very hot housing market across the country. With housing demand moderating… you should see prices stop going up.”
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However, the flip side of high mortgage rates in an environment of high inflation and record home costs could eventually disqualify millions of Americans from owning a home, according to Harvard University’s annual housing report on Wednesday.

A year ago, a buyer who paid a 20% discount on a $390,000 median home and financed the rest with a 30-year mortgage at a 3.02% fixed interest rate received a $1,673 monthly mortgage payment, according to numbers from Freddie Mac. .

At today’s rate of 5.81%, your monthly mortgage payment on the same home would be $2,187, a difference of $514.’s director of economic research, George Ratio, said housing already appears to be transitioning to the “new post-pandemic normal.” Rents are at a record level for the 15th consecutive month, but the pace of growth is slowing, he said, adding that home price gains are also waning.

“Market prices will continue to adjust to a smaller group of eligible buyers and higher financing costs,” he said in a statement. “Transitioning from an overheated real estate market to a more sustainable market is going to take some time. The upside is that we should eventually see a healthier environment with more choices and better value for many buyers.”

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