Mortgage interest rates have reached their greatest level in 21 years. This week, mortgage rates in the United States reached their greatest level in 21 years.
According to data released Thursday by Freddie Mac, the average 30-year fixed-rate mortgage increased from 6.96% to 7.09% in the week ending August 17. The 30-year fixed-rate was 5.13 percent a year ago.
Since the end of May, rates have been above 6.5% and have been rising since mid-July. The last time interest rates exceeded 7% was in November of last year, when they reached 7.08 percent. This week’s average 30-year fixed mortgage rate is the highest since April 2002, when it was 7.13 percent.
During the Federal Reserve’s historic rate-hiking campaign, mortgage rates soared, reducing home affordability to its lowest level in decades. The additional cost of financing the mortgage makes purchasing a home more expensive, and homeowners who previously locked in lower interest rates are reluctant to sell. The combination of low inventory and high prices has squeezed would-be purchasers, resulting in a 20% decline in home sales from the previous year.
“The economy continues to perform better than anticipated, and the 10-year Treasury yield has increased, causing mortgage rates to rise,” said Freddie Mac’s chief economist, Sam Khater. “Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales.”
The average mortgage rate is derived from mortgage applications submitted by thousands of lenders to Freddie Mac. The survey only includes borrowers with 20% down payments and stellar credit.
Inflation worries persist
The average 30-year fixed-rate loan rate is rising in tandem with 10-year Treasury yields, which reached their greatest level since the summer of 2007.
As investors reacted to the release of the Federal Reserve’s meeting minutes on Wednesday, Treasuries rose, according to George Ratiu, Chief Economist at Keeping Current Matters, a real estate market insights and content company. According to the minutes, members are concerned that inflation will remain elevated for longer than anticipated.
Ratiu stated, “Coming out of a three-year pandemic, the economy continues to expand on the strength of robust consumer spending and business investment.” For the majority of Americans, economic development means job security and higher pay.
He noted, however, that the Fed’s outlook for taming inflation this year remains hawkish in light of the robust wage gains.
“With the twin inflation peaks of the late 1970s firmly in its monetary lens, the central bank remains committed to achieving its inflation target of 2%,” he said. Measures of core inflation remain above 4%, indicating that additional rate increases are on the Federal Reserve’s monetary agenda.
Although the Fed does not explicitly set mortgage interest rates, its actions have an effect on them. Mortgage rates tend to follow the yield on 10-year US Treasuries, which fluctuates based on the Fed’s expected actions, the Fed’s actual actions, and investor reactions. When Treasury yields increase, so do mortgage rates; when they decrease, so do mortgage rates.
Realtor.com economist Jiayi Xu stated, “Despite still high prices and elevated interest rates, July retail sales data showed that consumer spending continues to increase solidly as demand is boosted by high wage growth.”
Despite the fact that this robust economic data may alleviate fears of an imminent recession, it may increase concerns that interest rates will remain elevated for an extended period of time, she said.
In the meantime, it is important to note that the Fed is proceeding with caution to ensure that the effects of previous rate increases are revealed in full.
“As a result, the Fed may opt for another ‘wait-and-see’ strategy at its upcoming meeting,” said Xu, “which could mitigate the recent upward trend in mortgage rates.”