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Inflation strongly stunned the pricing of houses, and mortgage rates continued to rise, increasing by 7% during the sixth consecutive week.
During the week of September 29, the 30-year mortgage was 6.70%, which increased by 6.29% from the week earlier.
The mortgage rate has been at the highest level since July 2007.
Mortgage rates
Inflation has increased since the beginning of this year, which has brought about the credit costs of the Federal Reserve.
As a result, mortgage rates have more than doubled.
The central bank’s campaign and efforts to curb inflation have raised concerns among investors about roiled bond markets.
“The uncertainty and volatility in financial markets is heavily impacting mortgage rates,” said Sam Khater, chief economist at Freddi Mac.
According to Freddie Mac, the average mortgage rate is based on a study of conventional home purchase mortgages for borrowers with excellent credit and a down payment of 20%.
Why are interest rates rising at such a breakneck pace?
The Federal Reserve’s aggressive rate hikes are producing the results needed to reduce demand, especially in the real estate sector.
Higher rates have pushed home prices down, leading to declining sales.
However, there is still a shortage of homes for sale, keeping prices high.
According to Bob Broeksmit, president and CEO of the Mortgage Bankers Association, the Fed’s efforts to curb inflation have had a major impact on the mortgage market.
“Mortgage rates have increased more than a percentage point in the past six week,” said Broeksmit.
“Refinance and purchase applications continue to decrease on both a weekly and annual basis.”
Realtor.com manager and economic researcher George Ratiu said rates should continue to rise, stating:
“While even two months ago rates above 7% may have seemed unthinkable, at the current pace, we can expect rates to surpass that level in the next three months.”
While the Fed does not directly set the interest rates that borrowers pay on mortgages, their actions do have an impact.
For example, mortgage rates are generally based on the 10-year US Treasury yield.
When investors see or expect interest rate increases, they sell government bonds, leading to higher yields and higher mortgage rates.
The 10-year Treasury yield hit 4% this week-a level last seen in 2008.
According to Ratiu, financial market volatility is an indicator of uncertainty caused by robust economic activity and expectations of a slowdown in 2023.
“The main concern is Americans’ ability to weather 40-year high inflation, which is shrinking paychecks amid sharp rent increases and still-rising home prices, not to mention high interest rates, which are curbing households’ ability to borrow,” said Ratiu.
Worsening affordability
Would-be buyers are grappling with the most unaffordable housing market in nearly four decades, driven by stubbornly high house prices, rising interest rates and falling wage values.
According to a calculation by Freddie Mac, buyers who paid 20% for a $390,000 home in 2021 and financed the rest with a 30-year fixed rate mortgage at an average interest rate of 3.01% had a monthly mortgage payment of $1,317.
Today, homeowners paying for the same home at 6.70% interest would be paying $2,013 a month in principal and interest, or $696 more a month.
Mortgage rates have risen sharply this year, costing typical home buyers $107,000 in buying power, according to Realtor.com.
Households earning the median income with a 20% down payment could afford homes that were priced at $448,700 at the start of the year when interest rates were 3.1%.
According to data from Realtor.com, the same household can only buy a $341,700 home with rates reaching 7%.
“The huge surge in mortgage rates over the last nine months have squashed many buyers’ budgets, leading to a significant pullback in transactions,” said Ratiu.
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