Mortgage rates in the United States have reached their highest levels in 22 years, with the average rate for a 30-year fixed home loan climbing to 7.53% in the week ending September 29. This marks a significant increase from the previous week's rate of 7.41% and is the highest rate since November 2000. The rate for a 15-year mortgage also rose, averaging 6.78% compared to 6.72% the previous week.
The steady increase in mortgage rates over the past year can be attributed to factors such as inflation and the Federal Reserve's response to it. In July, the Fed raised its key interest rate, which led to higher borrowing costs for various financial products, including mortgages.[0]
The rise in mortgage rates has had a significant impact on the housing market, with mortgage applications for home purchases reaching their lowest level since 1995.[1] Many potential homebuyers have been priced out of the market due to the rapid increase in rates.[2]
The increase in mortgage rates has also affected refinancing activity, with the volume of refinances dropping by 7% compared to the previous week and 22% lower than the same time last year. The refinance share of mortgage activity decreased to 31.7% of total applications from 31.9% the previous week.
Experts believe that several factors, including shifts in inflation, the job market, and uncertainty surrounding the Federal Reserve's next move, have contributed to the highest mortgage rates in a generation. These factors have also resulted in a decrease in homebuyer demand.[3]
The rise in mortgage rates can be attributed to the Federal Reserve's efforts to combat surging inflation by hiking its key interest rate. While the fed funds rate does not directly impact mortgage rates, it indirectly influences them.[4] The Fed has hinted at the possibility of additional rate increases if inflation doesn't continue to moderate.[1]
Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed's actions, what the Fed actually does, and investors' reactions.[0] When Treasury yields go up, mortgage rates follow suit.[5]
The impact of rising mortgage rates has been felt by homeowners, with over 90% of them having mortgage rates under 6%. Homeowners with low rates are not interested in trading them for today's higher rates.[5]
The increase in mortgage rates has also had an effect on home sales. New home sales fell 8.7% from July to August, while existing home sales dropped by 0.7% during the same period.[6] The supply of available homes has also been affected, as homeowners are less likely to put their homes on the market due to the high mortgage rates.
Overall, the rise in mortgage rates in the United States has had a significant impact on the housing market.[7] Potential homebuyers have been priced out of the market, and refinancing activity has decreased. The Federal Reserve's actions to combat inflation and uncertainty surrounding its future moves have contributed to the highest mortgage rates in a generation.
0. “Today's national mortgage & refinance rates, October 2nd, 2023 – Rates increase” Bankrate.com, 2 Oct. 2023, https://www.bankrate.com/mortgages/todays-rates/mortgage-rates-for-monday-october-2-2023/
1. “Mortgage Rates Reach 20-Year Peak, Eroding Homebuyers' Purchasing Power” National Mortgage Professional, 5 Oct. 2023, https://nationalmortgageprofessional.com/news/mortgage-rates-reach-20-year-peak-eroding-homebuyers-purchasing-power
2. “Mortgage applications slump after rates surge to 23-year high” HousingWire, 4 Oct. 2023, https://www.housingwire.com/articles/mortgage-applications-slump-after-rates-surge-to-23-year-high/
3. “Mortgage rates reach highs last seen in 2000” The Boston Globe, 5 Oct. 2023, https://www.bostonglobe.com/2023/10/05/business/mortgage-rates-reach-highs-last-seen-2000/
4. “Mortgage Rates Plunge for Biggest One-Day Drop in 6 Months” Investopedia, 2 Oct. 2023, https://www.investopedia.com/mortgage-rates-plunge-for-biggest-one-day-drop-in-6-months-8303311
5. “Mortgage rates climb to 7.49%, hurting home sales” KTEN, 3 Oct. 2023, https://www.kten.com/story/49781306/mortgage-rates-climb-to-749-hurting-home-sales
6. “Mortgage applications: ‘They've ground to a halt'” Yahoo Finance, 4 Oct. 2023, https://finance.yahoo.com/news/mortgage-applications-theyve-ground-to-a-halt-184822966.html
7. “Mortgage Rates Move Up Today Oct. 2, 2023: What Does That Mean for Homebuyers?” CNET, 2 Oct. 2023, https://www.cnet.com/personal-finance/mortgages/mortgage-rates-move-up-today-oct-2-2023-what-does-that-mean-for-homebuyers/
