Mortgage Rates Double From a Year Ago; at Highest in 14 Years

Mortgage rates continue to increase while inflation remains the focus of the Federal Reserve.

Mortgage rates rose again, reaching 5.89%, double the 2.9% rate of a year earlier as the Federal Reserve seeks to damp inflation rates.

The rate is the highest on the 30-year mortgage since 2008, according to a weekly survey by Freddie Mac released on Sept. 8. 

The 15-year mortgage rate is 5.16% while the five-year adjustable rate mortgage is 4.64%. 

Mortgage rates are likely to continue to climb as the central bank has signaled that it will continue to hike interest rates in an attempt to curb inflation. 

The Fed is expected to increase rates by another 0.75 percentage point when it meets later in September.

The housing market has started to show signs of cooling as higher mortgage rates are pricing out potential homebuyers, especially first-time owners who cannot afford the higher monthly payments.

“Mortgage rates have resumed climbing as the Fed has talked tougher about raising interest rates to tame inflation,” Greg McBride, chief financial analyst for Bankrate, a New York-based financial data company, told TheStreet. 

“Also, the pace at which the Fed is allowing their balance sheet to run off has doubled beginning this month, something that has an outsized effect on the mortgage-backed-securities market and could be a contributing factor.”

The housing market is affected by interest rate increases. Mortgage rates will start to decline once the economy shows signs of a slowdown and lower growth, McBride said.

“Mortgage rates tend to move well in advance of actual Fed rate hikes but will likely remain at these elevated levels until we see clear evidence that inflation is slowing significantly,” he said. 

“Economic weakness or a recession will eventually bring mortgage rates down, but that isn’t exactly the type of environment that has would-be homebuyers brimming with confidence.”

Fed Focus; Impact on Homebuyers

The housing sector remains a priority for the Fed.

“We’re all focused on the housing sector,” said Fed Vice Chairwoman Lael Brainard during a banking conference on Sept. 7. 

Prospective home buyers have limited options as home prices rose sharply in 2021 and pnly in recent months have started to decline in some markets. 

Some consumers have chosen to step aside and wait for mortgage rates to decline and for sellers to reduce their asking prices. Adding hundreds of dollars to a monthly payment is a stretch for many households.

“Many prospective home buyers have moved to the sidelines given the meteoric rise in both home prices and mortgage rates and the combined impact on affordability,” McBride said. 

“A more balanced market will benefit buyers but that won’t undo the high home prices and mortgage rates.”

Housing prices have started to fall in some areas. During the four-week period ended Aug. 28 the average house was selling for less than its list price for the first time in more than 17 months, according to real estate company Redfin.

The housing market has started to contract slightly, but demand from buyers has declined while sellers are also reluctant to list their homes.

“While the cooldown appears to be tapering off, there are signs that there is more room for the market to ease,” said Daryl Fairweather, chief economist for Redfin. “The post-Labor Day slowdown will likely be a little more intense this year than in previous years when the market was super tight.”

Fewer consumers searched for “homes for sale” on Google – searches fell by 26% for the week ending Aug. 27 compared with a year earlier, according to Redfin’s data. 

The number of mortgage-purchase applications also dipped by 2% week over week and declined 23% during the week ending Aug. 26, compared with a year ago.

“Expect homes to linger on the market, which may lead to another small uptick in the share of sellers lowering their prices,” he said. 

“Homebuyers’ budgets are increasingly stretched thin by rising rates and ongoing inflation, so sellers need to make their homes and their prices attractive to get buyers’ attention during this busy time of year.”

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