As mortgage rates in the United States continue to increase and reach their highest levels in over 14 years, more prospective buyers are being priced out of the market.
According to a report released by mortgage buyer Freddie Mac on Thursday, the 30-year rate increased from 5.66% to 5.89%. The long-term rate hasn’t been so high since November 2008, just after the Great Recession was launched by the collapse of the housing market. In the previous year, the rate was 2.88%.
During the coronavirus epidemic, mortgage rates fell to some of their all-time lows, but since the Federal Reserve announced in March that it was hiking its benchmark short-term interest rate, they have risen sharply.
The typical rate on 15-year fixed-rate mortgages, which are popular among house buyers wanting to refinance, increased from 4.98% to 5.16% last week. Since the real estate market entered a protracted downturn in 2009, the 15-year rate hasn’t been over 5% until now. The rate at same time last year was 2.19%.
According to Moody’s Analytics Chief Economist Mark Zandi, the increase in mortgage rates would cause average homebuyers to spend up to $600 more per month for a traditional 30-year mortgage.
The Fed’s vigorous efforts to contain inflation have contributed to rising interest rates, which have chilled the long-hot housing market. As a result of the increased rates driving up monthly mortgage payments by several hundred dollars, many prospective house buyers are being forced out of the market.
According to the National Association of Realtors, sales of existing houses have decreased in the United States for six consecutive months.
According to Selma Hepp of real estate research company CoreLogic, “the greater cost of homeownership has definitely impacted affordability, since inflation-adjusted monthly mortgage costs are now even higher than they were at their earlier peak in 2006.”
According to CoreLogic, home prices have been rising and were about 16% higher in July than they were a year earlier. However, prices are now reducing, with a 0.3% decrease from June to July. By July of next year, the company anticipates a slowdown in annual house price growth to 3.8%.
Mortgage rates often follow the yield on the 10-year Treasury note rather than necessarily reflecting Fed rate rises. This is affected by a number of variables, such as investor expectations for future inflation and demand for American goods abroad. Treasurys.
Recently, the 10-year Treasury rate increased significantly to 3.27% due to rising inflation and robust U.S. economic growth.
The Fed has increased its benchmark short-term interest rate four times this year, and Chairman Jerome Powell has said that in order to control the worst inflation in 40 years, the central bank would probably need to maintain interest rates high enough to slow the economy “for some time.”
According to the government, the U.S. economy contracted for a second consecutive quarter from April through June at an annual pace of 0.6%, meeting one informal indicator of a recession. Given that the employment market in the United States is still strong, the majority of economists have said that they do not believe the economy is in or is about to enter a recession.
Despite the Fed’s efforts to contain inflation, applications for unemployment benefits dropped last week to their lowest level since May.