Mortgage rates jumped again, surpassing the 6% mark and reaching their highest level since the fall of 2008.
The 30-year fixed-rate mortgage averaged 6.02 percent in the week ended Sept. 15, up from 5.89 percent the previous week, according to Freddie Mac. This is significantly higher than this time last year when it was 2.86%.
Persistently high inflation is pushing interest rates up, said Sam Khatter, Freddie Mac’s chief economist.
“Mortgage rates continued to rise alongside hotter-than-expected inflation readings this week, topping 6% for the first time since late 2008,” he said.
After starting the year at 3.22%, mortgage rates rose sharply in the first half of the year, reaching nearly 6% in mid-June. But since then, concerns about the economy and the Federal Reserve’s mission to fight inflation have made them more volatile.
Interest rates fell in July and early August as recession fears took hold. But comments from Federal Reserve Chairman Jerome Powell and recent economic data have returned investors’ attention to the central bank’s fight against inflation, pushing interest rates higher.
The yield on the 10-year Treasury note rose last week as markets braced for further monetary policy tightening by the Fed, said George Ratiu, manager of economic research at Realtor.com.
The Federal Reserve does not directly set the interest rates that borrowers pay on mortgages, but its actions affect them. Mortgage rates typically track the yield on the 10-year US Treasury bond. As investors see or expect interest rates to rise, they often sell government bonds, which raises yields and therefore mortgage rates.
Investors reacted to inflation data in August that showed consumer prices continued to rise at 1980 levels, Ratiu said.
“Core inflation remains stubbornly elevated, putting pressure on the Federal Reserve to maintain an aggressive monetary tightening stance,” he said. “Markets are closely watching the central bank’s meeting next week, expecting another 75 basis point interest rate hike, if not a 100 basis point jump.”
As mortgage rates rise and home prices remain high, home sales slow.
With interest rates doubling from a year ago, home loan applications are down and applications for down payment refinances have fallen off a cliff, down 83% from a year ago, according to the Mortgage Bankers Association.
“Higher mortgage rates … contributed to more homebuyers being on the sidelines,” said Joel Kahn, MBA’s associate vice president for economic and industry forecasting.
A year ago, a buyer who put 20% down on a $390,000 home and financed the rest with a 30-year fixed-rate mortgage at an average interest rate of 2.86% had a monthly mortgage payment of $1,292, according to Freddie Mac calculations.
Today, a homeowner buying a house for the same price with an average interest rate of 6.02% would pay $1,875 a month in principal and interest. That’s $583 more every month.
“With real median household incomes remaining relatively flat, many first-time homebuyers are finding that the door to home ownership is closed for the season,” Ratio said.
He said that as borrowing costs are expected to continue to rise over the next few months, it is increasingly clear that house prices need to come down to rebalance housing markets.
“Many sellers recognize the change in market conditions and respond by lowering their asking prices,” he said. “These changes coincide with the time of year when buyers have historically found the best market conditions to find a bargain.”