According to data released by mortgage lender Freddie Mac on Thursday (26th), the average interest rate on 30-year fixed mortgages rose to 5.55% this week from 5.13% the previous week, and the weekly interest rate reached a new high since late June. Soaring interest rates have added pressure to the housing market, which has now seen demand for housing slump from its peak during the coronavirus pandemic.
The rate also rose as U.S. 10-year yields climbed, which this week topped 3 percent for the first time in a month, reflecting investors preparing for the Federal Reserve’s next move , the Fed has been raising its benchmark interest rate to stem the worst inflation in decades.
Soaring home prices and rising mortgage costs this year have deterred many would-be buyers, cooling transactions and sending waves across the real estate industry.
Home sellers are slashing prices and real estate brokers are laying off staff. Builders are also slowing construction starts as unsold homes pile up, while increasing deals to lure customers. Also, some non-bank lenders are struggling to stay in business as mortgage applications remain at a 22-year low.
Sam Khater, chief economist at Freddie Mac, said the combination of rising mortgage rates and slowing economic growth has weighed on the housing market, with continued declines in home sales, a pullback in home prices and low consumer confidence. Still, potential homebuyers remain on the sidelines, waiting to return to the market amid weakening demand.
In a sign that buyers are indeed pulling out of the market, home loan applications, a key gauge of homebuyer demand, fell last week to their lowest level since April 2020, according to the Mortgage Bankers Association (MBA).
Joel Kan, MBA’s vice president for economic and industry forecasting, said the average size of home purchase loans fell last week, indicating weaker demand from buyers of high-priced homes. There are still signs of some buyers returning, though, and Kan pointed to a 4% increase in government loan applications alongside a decline in traditional home purchase applications, a growth that could be a sign of increased first-time buyer activity.