U.S. Mortgage Rates Spike to 7.63%, Maintaining Highest Level Since 2000

The cost of financing a home in the United States has seen another surge this week, with the average long-term mortgage rate reaching its highest level since December 2000. This development has significant implications for prospective homebuyers and those looking to refinance existing mortgages.

According to Freddie Mac, a prominent mortgage buyer, the average rate for a 30-year fixed-rate home loan has risen to 7.63%, up from 7.57% the previous week. This represents a notable increase from the 6.94% rate seen a year ago. Borrowing costs for 15-year fixed-rate mortgages, a popular choice for homeowners seeking to refinance, have also seen an uptick, climbing to an average of 6.92% from 6.89% last week and 6.23% a year ago.

The repercussions of these rising mortgage rates are substantial. As rates increase, monthly housing costs for borrowers also rise, potentially limiting their ability to afford homes. This comes at a time when the housing market is already deemed unaffordable for many Americans. Furthermore, the higher rates discourage homeowners who locked in much lower rates two years ago from selling their homes.

Notably, the current average rate on a 30-year mortgage is more than double what it was just two years ago, when it stood at a mere 3.09%. This marks the sixth consecutive week of increasing mortgage rates, with the weekly average remaining above 7% since mid-August. The current rate is the highest it’s been since December 1, 2000, when it averaged 7.65%.

Sam Khater, Chief Economist at Freddie Mac, noted, “Mortgage rates continued to approach 8% this week, further impacting affordability.” The combination of elevated rates and limited housing inventory has exacerbated the affordability crisis, leading to near-record high home prices even as sales of previously occupied U.S. homes have declined by 21% in the first nine months of this year compared to the same period in 2022.

Consequently, home loan applications have slumped to their lowest level since 1995, according to the Mortgage Bankers Association (MBA). MBA CEO Bob Broeksmit commented on this trend, stating that “mortgage application activity is now at its lowest level in 29 years as high mortgage rates, limited housing inventory, and affordability challenges continue to constrain borrowers.” Despite the difficulties faced by the housing market in 2023, MBA expects that mortgage rates will moderate as we head into 2024, potentially offering some relief to those aspiring to buy homes.

The surge in mortgage rates is closely tied to the rise in the 10-year Treasury yield, which serves as a benchmark for lenders in pricing loans. Investor expectations regarding future inflation, global demand for U.S. Treasuries, and the Federal Reserve’s actions on interest rates all play a significant role in influencing mortgage rates.

In summary, the escalating mortgage rates in the U.S. are reshaping the landscape of the housing market, impacting affordability and discouraging some potential buyers. This dynamic is expected to evolve over time as economic conditions and monetary policies continue to fluctuate.