The average long-term U.S. mortgage rate has reached its highest level in almost 23 years, adding to the challenges faced by prospective homebuyers in an increasingly unaffordable housing market. The average rate on the benchmark 30-year home loan rose to 7.31% this week, up from 7.19% last week, according to mortgage buyer Freddie Mac on Thursday. This time last year, the rate averaged 6.70%.
Borrowing costs for 15-year fixed-rate mortgages, often preferred by homeowners refinancing their home loan, also increased, with the average rate rising to 6.72% from 6.54% last week. This rate was at an average of 5.96% a year ago.
Freddie Mac’s chief economist Sam Khater noted that the “30-year fixed-rate mortgage has hit the highest level since the year 2000.” He added that unlike at the turn of the millennium, house prices today are rising alongside mortgage rates due to low inventory, causing both buyers and sellers to hold out for better circumstances.
High rates can significantly increase monthly costs for borrowers, limiting affordability in a market that is already challenging for many Americans. Homeowners who secured lower rates two years ago are also discouraged from selling. The average rate on a 30-year mortgage is now more than double what it was two years ago when it stood at just 3.01%.
The combination of elevated rates and low home inventory has exacerbated the affordability crunch, keeping home prices near all-time highs even as sales of previously occupied U.S. homes have fallen 21% through the first eight months of this year compared to the same period in 2022.
This marks the third consecutive week that mortgage rates have risen. The weekly average rate on a 30-year mortgage has remained above 7% since mid-August and is now at the highest level since mid-December 2000, when it averaged 7.42%.
Mortgage rates have been rising in tandem with the 10-year Treasury yield, which lenders use as a guide to pricing loans. The yield has surged in recent weeks amid concerns that the Federal Reserve will maintain higher short-term interest rates for longer to combat inflation.
The central bank has already raised its main interest rate to the highest level since 2001 in an effort to curb high inflation, and it indicated last week that it may cut rates by less next year than previously expected. This prospect of higher rates for longer has pushed Treasury yields to levels not seen in more than a decade. The yield on the 10-year Treasury was at 4.61% in midday trading last Wednesday.
While mortgage rates do not necessarily mirror the Fed’s rate increases, they tend to track the yield on the 10-year Treasury note. Factors such as investors’ expectations for future inflation, global demand for U.S. Treasurys and the Fed’s decisions on interest rates can influence rates on home loans.
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Source: Investing.com
