As it becomes evident to investors that the Federal Reserve will continue its aggressive policy rate rises to battle inflation, average mortgage rates in the US have increased to their highest level in 14 years and are inching closer to 6 percent.
The 30-year fixed average rate increased to 5.89 percent this week, surpassing June’s most recent record and hitting its highest level since November 2008, according to mortgage buyer Freddie Mac.
According to Nadia Evangelou, economist for the National Association of Realtors, when combined with house prices that are close to record highs, it implies that the typical home’s monthly mortgage payment is now 60% more than it was a year ago.
Mortgage rates were just 2.86 percent a year ago, and the steep increase in borrowing prices has frightened away many potential homeowners, causing sales volume to plummet.
The average rate on a 30-year fixed jumped to 5.89 percent this week, topping June’s recent peak and reaching its highest level since November 2008
Mortgage rates were just 2.86 percent a year ago, and sharply higher borrowing costs have scared many homebuyers out of the market, sending sales volume plunging
Though median home prices teetered off their record highs in July, they are still up 10.8 percent from a year ago as housing inventory remains tight, according to the NAR.
The combination of higher prices and sharply increased borrowing costs means that buying a home is now much less affordable than it was a year ago.
‘While borrowing costs have increased faster than people’s wages, buyers currently need to spend 10 percent more of their budget for their mortgage payment if they want to buy the median-priced home’ compared to last year, said Evangelou in reaction to the latest rate data.
‘These higher mortgage rates have already impacted activity in the housing market,’ she added, saying that higher mortgage rates pushed home sales activity in July by 14 percentage points, compared to the 6 percent drop normally seen from June to July.
Mortgage rates closely follow yields on the 10-year US Treasury, which this week hit their highest level since June as strong economic data pointed to further jumbo rate increases by the Fed, which is trying to tame inflation without crashing the economy.
The Fed is expected to raise rates by another 75 basis points at its late-September meeting, which would raise the fed funds rate to 3.25 percent, up from near zero in March.
The average rate on the 30-year fixed mortgage is seen from 1971 to the present
Though home transactions declined, prices remain solidly strong, with July’s national median sales price of $403,800 representing a 10.8 percent increase from a year ago
July’s national median sales price of $403,800 representing a 10.8% increase from a year ago, and just below the record-high set in June
Though higher mortgage rates have sharply curtailed the number of home sales, national inventory remains tight by historical standards, and prices have yet to decline meaningfully nationwide.
July’s national median sales price of $403,800 represented a 10.8 percent increase from a year ago, though a slight dip from the record-high set a month earlier, the NAR said.
But there are growing signs that some markets where home prices have soared the highest could be facing a sharper correction — most notably on the West Coast.
Mortgage analytics firm Black Knight recorded a nationwide 0.77 percent drop in median home values between June and July, the biggest month-over-month drop since January 2011 in its latest monthly mortgage report this week.
More than one in ten homes have seen their value drop by 4 percent or more since the market peaked — mostly along the West Coast
San Jose, a center for technology in California, has had the steepest price decline, with properties there losing 10% of their value since their peaks.
More than 85% of the largest housing markets in America are at least marginally off their peaks, and more than 10% — largely along the West Coast — are seeing price declines of at least 4%.
According to the company’s president Ben Graboske, the 31 straight months of price increases ended in July. He issued a warning that the real estate industry was known for its “volatility and quick change.”
San Jose, a center for technology in California, has seen the largest drop in values, with properties there losing 10% of their value from three months ago when they peaked.
Over the same time period, Seattle (7.7%), San Francisco (7.4%), San Diego (5.6%), Los Angeles (4.3%), and Denver (4.2%) also saw sharp drops in prices from their peaks.
Researchers found that a further 5% decline in national house values would cause 275,000 borrowers and 0.9 percent of homeowners to go into negative equity, or when the amount owed exceeds the property’s fair market worth.
The survey found that national median house prices are 14.5 percent more than they were a year ago, which is three times greater than the historical norm, despite the monthly reductions.