Homebuyers Grapple with 7.49% Mortgage Rates on the Rise

In Washington, DC, the United States, mortgage rates have continued their relentless climb, reaching a staggering 7.49% this week. This surge in mortgage rates is making homeownership an ever more distant dream for prospective homebuyers, who are feeling the financial squeeze.

This recent spike follows an already concerning rate of 7.31% the previous week, as reported by data from Freddie Mac released on Thursday. To put it into perspective, just one year ago, the 30-year fixed-rate mortgage was a significantly lower 6.66%.

Sam Khater, the chief economist at Freddie Mac, shed light on the various factors contributing to this sharp increase. Factors such as shifts in inflation, the state of the job market, and the uncertainty surrounding the Federal Reserve’s next monetary move are all playing a role in driving mortgage rates to levels not seen in a generation. Unsurprisingly, these escalating rates are having a dampening effect on homebuyer demand.

This upward trajectory in mortgage rates is closely tied to the Federal Reserve’s ongoing efforts to combat historic levels of inflation. The central bank has hinted at the possibility of keeping rates elevated for an extended period due to persistent inflationary pressures. This has, in turn, led to an increase in the 10-year Treasury yield, a critical benchmark that influences mortgage rates.

The repercussions of these rising mortgage rates, coupled with the already elevated prices of homes due to a historically low inventory of available properties, have collectively pushed home affordability to its lowest point in many decades. As a result, the pace of home sales is lagging significantly, with a more than 20% decline compared to the same period last year, as reported by the National Association of Realtors.

It’s worth noting that the average mortgage rate calculation is based on data from mortgage applications received by Freddie Mac from a wide array of lenders across the nation. This survey specifically includes borrowers who have made a 20% down payment and possess excellent credit scores.

In this challenging climate, prospective buyers have displayed heightened sensitivity to interest rates, often retreating from the market when rates experience substantial spikes. Mortgage rates, currently at a 23-year high, continue to weigh heavily on the housing market, according to Bob Broeksmit, the President, and CEO of the Mortgage Bankers Association.

He added, “Purchase applications declined again last week, falling to the lowest level since 1995. Despite the recent jump in rates, we still anticipate that the 30-year fixed-rate mortgage will drop before the end of the year, providing some relief to prospective homebuyers heading into 2024.”

Interestingly, as mortgage rates hover near two-decade highs, homeowners are becoming increasingly reluctant to list their properties for sale. This reluctance has exacerbated an already constrained supply of available homes.

Black Knight, a mortgage data company, reveals that over 90% of homeowners are currently enjoying mortgage rates under 6%, with many securing rates even lower. Consequently, they are disinclined to trade their favorable rates for today’s higher ones.

In this competitive landscape, home affordability remains a significant challenge for many potential buyers. Prices continue to inch upward as house hunters vie for the limited inventory available in the market.

Jiayi Xu, an economist at Realtor.com, noted, “While declining pending home sales and new home sales signaled a slowdown in buyer activities, the increasing home listing prices and shorter days spent on the market suggested that homebuyers are competing over the limited inventory.”