Despite affordability challenges, the average long-term U.S. mortgage rate rose to just under 7% this week due to a lack of homes for prospective homebuyers in the housing market.
Freddie Mac, the mortgage buyer, reported on Thursday that the average rate for the benchmark 30-year home loan has increased from 6.90% to 6.96%, up from an average of 5.22% a year ago.
The average rate has experienced its third consecutive weekly increase, matching the record high achieved on July 13, which was set in 1899. Rising rates can result in significant expenses for borrowers, restricting their ability to borrow in a market that is already too expensive for many Americans.
According to Sam Khater, Freddie Mac’s chief economist, it is certain that high rates will prolong affordability difficulties for an extended period, particularly with the rise of home prices. However, this upward pressure on rates is due to a resilient economy with low unemployment and strong wage growth, which has historically supported purchase demand.
The average rate of interest on a 30-year mortgage is still over twice the rate it was two years ago, which was just 2.87%. This has led to soaring home sales and refinancing, and the higher rates are now causing fewer homes to be sold.
A significant factor behind the 23% decline in home sales during the first half of this year is the lack of housing supply.
Following a surge in the 10-year Treasury yield, which reached 4.19% last week, its highest level since early November, the latest rate increase was at 4.02% in midday trading on Thursday.
Due to the pressure of high inflation, the Federal Reserve increased its benchmark interest rate 11 times since March 2022, resulting in the fed funds rate being at its highest level in 22 years. Inflation has decreased steadily since last summer, and many experts believe the Fed has finally reached the end of its rate hikes.
The Fed’s rate hikes are not necessarily the case, but mortgage rates typically follow the yield of a 10-year Treasury note. Investors’ expectations for inflation, the global demand for U.S. Treasurys, and the Fed itself can affect home loan rates.
The average interest rate on 15-year fixed-rate mortgages, which are popular with those refinancing homes, increased to 6.34% from 6.25% last week. It was an average of 4.59% a year ago, as reported by Freddie Mac.