Mortgage rates rise to nearly 6.3%, highest level since 2008

The 30-year fixed-rate mortgage averaged 6.29% in the week ended Sept. 22, compared with 6.02% the previous week, according to Freddie Mac. This is significantly higher than last year, when it was 2.88%, and the highest level since October 2008.

Since the beginning of this year, mortgage rates have almost doubled. After rising to nearly 6% in mid-June, recession fears made interest rates more volatile. Now, however, all eyes are on the central bank’s interest rate hike campaign in the fight against inflation.

“The housing market continues to face headwinds as mortgage rates rise again this week,” said Freddie Mac Chief Economist Sam Khater.

As a result of higher rates, home prices have started to soften and sales have declined. But there is still a shortage of homes for sale, which has kept home prices high.

“A rapid increase in interest rates will certainly slow the pace of sales and throw cold water on what was a frenetic housing market just a few months ago,” said Marty Green, principal at Polunsky Beitel Green, a law firm that represents mortgage lenders. “If the big concern in 2021 and early 2022 was ‘inventory’, today the concern is ‘affordability’.”

The Fed’s rate hikes appear to be having an effect

On Wednesday, Federal Reserve Chairman Jerome Powell announced a third consecutive 75 basis point hike.

The Fed does not directly set mortgage interest rates for borrowers, but its actions affect them. Mortgage rates typically track the yield on the 10-year U.S. Treasury note. As investors see or expect interest rates to rise, they often sell Treasuries, which pushes up yields and mortgage rates.

This week’s rate hike pushed those rates on the 10-year Treasury to 3.5%, the highest level in more than a decade.

Rising interest rates put additional pressure on those trying to save up to buy a home.

“Consumers can expect rate hikes on adjustable-rate mortgages, credit cards, auto and personal loans in the coming weeks,” Ratiu said. “For housing markets, higher borrowing costs are just the tool the Fed is prescribing to cool demand and lower overheated prices.”

Although this slowdown may not yet be reflected in inflation numbers, “There is no question that the aggressive rate hikes by the Federal Reserve will certainly cool the residential real estate market.”

But potential buyers still face the most affordable housing market in 35 years, given the combination of persistently high home prices, rising interest rates and lagging wage growth.

A year ago, a buyer who put down 20% on a $390,000 home and financed the rest with a 30-year fixed-rate mortgage paid an average interest rate of 2.88%, according to Freddie’s calculations. Mac.

Today, a homeowner buying the same priced home with an average interest rate of 6.29% would pay $1,929 a month in principal and interest. That’s $634 more each month.

Powell is still looking to “reset” housing.

Powell said earlier this summer that the housing market was in a difficult situation where home prices could still rise even as mortgage rates rose.

“I would say if you’re a home buyer or a young person looking to buy a home, you need to reset a little bit,” Powell said at the Fed’s June meeting. “We need to get back to a place where supply and demand are back together and inflation is low again and mortgage rates are low again.”

At this week’s meeting, Powell said housing prices are rising unsustainably fast. He said the reset should help bring prices more in line with rents and other housing market fundamentals.

“It’s a good thing,” Powell said. “In the long term, we need supply and demand to come together better so that house prices rise reasonably and people can afford houses again.”

Additional reporting by Nicole Goodkind.