The average interest rate on a typical 30-year mortgage surpassed 7% this week, the highest level since 2001.
Mortgage rates rose from 6.94% last week to 7.16% this week, the Mortgage Bankers Association said Wednesday. The average rate on a 15-year fixed-rate mortgage grew to 6.39%, from 6.09% last week.
The spike in mortgage rates is cooling the housing market by spooking buyers with higher borrowing costs and prompting new home builders to scale back their plans. And some homeowners are holding off on listing their properties because they don’t want to give up mortgages they financed when rates were much lower.
“As the ability to afford a new mortgage diminishes, buyers are forced to step back, and potential sellers are faced with the trade-off of letting go of their affordable monthly payments and low rates becoming less favorable, meaning overall inventory and sales will suffer,” Zillow Senior Economist Nicole Bachaud said in a statement.
The higher rates translate into very real costs for homebuyers. Take a home that sells for the U.S. median price of $384,800 and that is purchased with a 20% down payment. At the current mortgage rate of 7.16%, a homebuyer would pay roughly $750 more per month than with a loan at 3.2%, the rate in early 2022.
The jump in borrowing costs is discouraging Americans from applying for mortgages and refinancing, noted Joel Kan, deputy chief economist at the Mortgage Bankers Association. Sales of previously occupied U.S. homes fell in September for the eighth month in a row, matching the pre-pandemic sales pace from a decade ago.
Some economists think mortgage costs are likely to keep climbing as the Federal Reserve continues lifting its benchmark interest rate in order to curb inflation.
The Fed doesn’t set mortgage rates directly, but loan costs typically move in concert with the federal funds rate. Wall Street analysts expect the Fed to hike rates twice more by year-end.
Mortgage rates could reach 8.5% “which would be another big shock to the housing market,” National Association of Realtors Chief Economist Lawrence Yun told a group of real estate investors last week. Other analysts predict mortgage rates could hit double digits.
