The average 30-year fixed mortgage rates hit 6.70% for the first-time since July 2007 last week, according to a survey of lenders released Thursday by Freddie Mac. lt marked the sixth week in a row of rising rates. This week’s rate was up from 6.29% last week. A year ago, rates were 3.01%. The surge in mortgage rates follows the Federal Reserve aggressively raising rates five times this year. Fed officials have indicated more increases are likely in the months ahead.
The 10-year treasury yield ricocheted this week as broad turmoil in the global bond markets, on Wednesday briefly touching 4%, its highest in more than a decade. It reversed sharply later that day, notching its biggest one-day decline since 2009.
Higher mortgage rates make homes less affordable
Interest rates have a major influence on housing because they significantly affect a buyer’s monthly payment.
Cost of borrowing to buy a house in an already been a pricey housing market. Before the Fed’s hikes the average fixed rate on a 30-year mortgage recently rose to 6.70%, from 4.16% the week of March 17, and additional rate increases would likely push mortgage rates even higher.
Rising rates translate to hundreds of dollars more in a monthly mortgage payment. The median home price reached $403,800 in July, according to data from the National Association of Realtors. Putting a 20% down payment on such a home and taking out a 30-year mortgage with a 6% rate will now pay around $2,400 a month. The same purchase six months ago, would mean monthly payments nearly $250 less.
““Treasury yields continued to climb higher last week in anticipation of the Federal Reserve’s September meeting, where it is expected that they will announce – in their efforts to slow inflation – another sizable short-term rate hike. Mortgage rates followed suit last week, increasing across the board, with the 30-year fixed rate jumping 24 basis points to 6.25 percent – the highest since October 2008,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
“As with the swings in rates and other uncertainties around the housing market and broader economy, mortgage applications increased for the first time in six weeks but remained well below last year’s levels, with purchase applications 30 percent lower and refinance activity down 83 percent. The weekly gain in applications, despite higher rates, underscores the overall volatility right now as well as Labor Day-adjusted results the prior week.””
The uncertainty in the economy and interest rates has widened the gap between what various lenders are offering, Freddie Mac chief economist Sam Khater said in a statement. “The large dispersion in rates means it has become even more important for homebuyers to shop around with different lenders.”
“If you look at the big picture of where we stand today versus where we were entering this year, we’re in a vastly different affordability environment,” said Andy Walden, vice president of enterprise research at mortgage-data firm Black Knight.
The higher rates have also made refinancings an unattractive proposition. Applications to refinance are down nearly 85% from a year ago, according to data released Wednesday by the Mortgage Bankers Association. The drop-off is forcing some mortgage lenders to cut jobs or even close shop, since refinancings made up the bulk of originations during the pandemic.
The MBA expects mortgage originations to drop 48% to $2.3 trillion this year, dragged down by a 73% decline in refinancings.
Source: MBA, Freddie Mac
From The TradersCommunity News Desk