US mortgage interest rates rose again this week, rising to their highest level since 2001.
The average 30-year fixed-rate mortgage was 7.23% in the week ending Aug. 24, up from 7.09% in the previous week, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed interest rate was 5.55%.
Sam Khater, chief economist at Freddie Mac, said persistent signs of economic strength are likely to keep mortgage rates flat or push them higher in the short term.
Interest rates have been above 6.5% since the end of May and have been rising since mid-July. Before last week’s rate, the last time rates were over 7% was in November last year, when it reached 7.08%.
This week’s average interest rate is the highest for a 30-year mortgage since the week ending June 1, 2001, when it was 7.24%.
Mortgage rates have soared during the Fed’s historic campaign to curb inflation, sending housing affordability down to a multi-decade low. It is more expensive to buy a home because of the additional cost of mortgage financing and higher home prices.
The inventory of existing homes has dropped dramatically as homeowners who were previously tied to lower rates are now reluctant to sell. The combination of low inventory and rising costs put pressure on potential homebuyers and drove down overall home sales.
The 10-year Treasury yield has been hovering above 4.0% since the beginning of the month, which has helped push mortgage rates to more than 7%.
Mortgage rates are expected to continue to rise as the bond market grapples with signs of a growing economy and what implications could be for future monetary policy moves by the Board of Directors, said George Ratiu, chief economist at Keeping Current Matters, a real estate market. Federal Reserve. Visions and Content Company.
“Financial markets are worried that the central bank will continue to raise the money rate, which will push up borrowing costs,” he said. “For many investors, there is concern that the Fed may overtighten monetary policy and lead to economic damage.”
Although the Fed does not directly set the interest rates that mortgage borrowers pay, its actions affect them. Mortgage rates tend to track the 10-year US Treasury yield, which moves based on a combination of anticipation of the Fed’s actions, what the Fed actually does, and investor reaction. When Treasury yields rise, so do mortgage rates; And when they go down, mortgage rates tend to follow.
“While the central bank was behind the curve in 2021 as inflation was picking up, dismissing it as ‘temporary’, it took a more aggressive stance in 2022 with sharp rate increases,” Ratiu said. At the same time, the Fed has been aiming for a “soft landing” in its monetary measures, which means curbing inflation without hurting economic activity.
Ratiu said few saw that as a possible outcome in 2022, but a year and a half into the tightening cycle, inflation is subsiding and the economy continues to grow.
This leads to higher borrowing costs for consumers, and this is not expected to change in the near term.
“For buyers and sellers, today’s mortgage rates present a major affordability challenge,” Raito said. “For most people, buying a home means borrowing money. At today’s rate, the monthly cost of buying a home is about $2,400, not including property taxes and insurance, up 17% from last year.