The average long-term U.S. mortgage rate climbed this week to its highest level in more than 20 years, grim news for would-be homebuyers already challenged by a housing market that remains competitive due to a dearth of homes for sale.
Mortgage buyer Freddie Mac said Thursday that the average rate on the benchmark 30-year home loan rose to 7.09% from 6.96% last week. It’s the highest rate since early April 2002 when it averaged 7.13 percent. The last time the average rate was above 7% was last November, when it stood at 7.08%.
High rates can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford in a market already unaffordable to many Americans.
“With prices even higher than they were a year ago in many markets, crossing the 7% mortgage rate threshold again could be what sets in motion a major contraction in the housing market this fall,” said Lisa Sturtevant, chief economist for Bright MLS.
The latest increase in rates follows a sharp uptick in the 10-year Treasury yield, which has been above 4% this month and climbing. On Thursday morning the yield, used by lenders to set rates for mortgages and loans, reached its highest level since last October. It is also close to the levels of 2007. The main reason for the slowdown in home sales is affordability issues. “
High inflation drove the Federal Reserve to raise its benchmark interest rate 11 times since March 2022, lifting the fed funds rate to the highest level in 22 years.
Mortgage rates don’t necessarily mirror the Fed’s rate increases, but tend to track the yield on the 10-year Treasury note. Investors’ expectations of future inflation, the global demand for U.S. Treasurys, and what happens with interest rates at the Fed can all influence home loan rates. The ultra-low interest rates sparked a massive wave of home sales. Home sales have fallen 23% in the first half of 2010 due to a lack of housing. The average rate on 15-year fixed-rate mortgages, popular with those refinancing their homes, rose to 6.46% from 6.34% last week.