Mortgage rates have climbed above 7%, the highest since 2001, as the market for home loans responds to the Federal Reserve‘s historic efforts to raise interest rates.
As of Wednesday, the average rate on a 30-year fixed-rate mortgage popped to 7.16%, up more than 4 percentage points from a year before and the tenth consecutive week of increases, according to the Mortgage Bankers Association. That is a 1.5-point jump since just the start of September. The rate on an average 15-year fixed-rate mortgage rose to 6.39%.
“The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” said Joel Kan, MBA’s vice president and deputy chief economist.
THE GOP ARMS ITSELF FOR A NEW WAR ON THE IRS
The MBA found that mortgage applications fell by 1.7% from just the week before, a sign that consumers are shying away from the housing market as homes become more unaffordable due to the rising mortgage rates.
“MBA’s forecast expects both economic and housing market weakness in 2023 to drive a 3% decline in purchase originations, while refinance volume is anticipated to decline by 24%,” said Kan.
This week it was revealed that housing prices rose 13% on the year in August, much slower growth from the month before when prices were up 15.6%, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index. That 2.6 percentage point deceleration is the largest in the history of the index, which has been used as a gauge since 1987.
Wednesday’s report from the MBA is just the latest to show mortgage rates climbing. Mortgage News Daily, an industry publication, has been tracking rates above 7% for about the past month and Freddie Mac has the average 30-year fixed-rate mortgage at 6.94%.
Mortgage rates have been on an upward trajectory since just before the Fed started jacking up its interest rate target (which is a different, very short-term rate) in March. At the beginning of this year, mortgage rates were hovering at an ultra-low 3%, fueling a massive housing boom and sending homebuyers into a frenzy.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The Fed has been aggressively jacking up interest rates to tame inflation. Driving up interest rates slows demand and can result in recessionary conditions. Last month, the central bank conducted a monster rate hike to the tune of three-quarters of a percentage point or 75 basis points. It was the third such increase in just four months.
There are indications that the Fed’s rate hiking won’t conclude in the near future. The consumer price index for September clocked in at 8.2%, higher than expected. That shows that inflation has remained sticky despite the monster rate increases, something that signals more Fed tightening on the horizon.
