Mortgage rates in the US have soared to their highest level in 21 years, putting a damper on the housing market and the economy.
According to data from Freddie Mac, the 30-year fixed-rate mortgage averaged 7.09% in the week ending August 17, up from 6.96% the week before. A year ago, the 30-year fixed-rate was 5.13%. The last time rates were over 7% was in November of last year when they hit 7.08%. This week’s average rate is the highest the 30-year, fixed-rate mortgage has been since April 2002 when it was 7.13%.
The rise in mortgage rates is largely driven by the Federal Reserve’s aggressive rate-hiking campaign to curb inflation, which has surged to its highest level in decades. The Fed has raised its federal funds rate, a short-term interest rate that influences other borrowing costs, by 25 basis points (or 0.25%) 11 times since December of last year. The most recent hike was on July 26.
The higher mortgage rates have made buying a home more expensive and less affordable for many Americans, especially first-time buyers and low-income households. Home sales have dropped about 20% from a year ago, according to the National Association of Realtors. The low inventory of homes for sale has also contributed to the slowdown in the housing market, as homeowners who locked in lower rates are reluctant to sell and move.
The housing market is a key component of the US economy, as it affects consumer spending, construction activity, employment and wealth. A prolonged slump in the housing market could have negative spillover effects on other sectors and dampen the economic recovery from the pandemic.
Experts say that mortgage rates are likely to remain high for the rest of the year, as the Fed is expected to continue raising rates to keep inflation under control. However, some analysts also point out that mortgage rates are still relatively low by historical standards and that demand for housing will remain strong due to demographic factors and lifestyle changes.
Homebuyers who are looking for a mortgage should shop around and compare rates and fees from multiple lenders to get the best deal. They should also consider improving their credit score and saving for a larger down payment to qualify for lower rates and better terms.
