Mortgage rates barreled past the 7 percent mark on Thursday to their highest level since 2002, as the Federal Reserve’s aggressive interest rate increases, meant to combat inflation, continued to seep through the economy and worry markets.
Rates on 30-year fixed-rate mortgages — the most popular kind among home buyers in the United States — rose to 7.08 percent, up from 6.94 per percent last week and 3.14 percent from this time last year, according to the latest weekly survey by Freddie Mac. Rates had already surpassed 7 percent according to other trackers, but this is the first time that the closely watched Freddie Mac survey surpassed that level in two decades.
“As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month,” Sam Khater, the chief economist at Freddie Mac, said in a statement. “In fact, many potential home buyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”
Even though mortgage rates have rocketed higher over a short period, they are still slightly below their long-term average of about 7.8 percent, according to Freddie Mac, which began tracking borrowing costs in 1971. In the early 1980s, rates stretched well into the double digits, exceeding 18 percent in 1981.
Mortgage rates typically track the 10-year Treasury note, which is influenced by a variety of factors, including the Fed’s efforts to rein in inflation and growing concerns among investors that a recession is imminent. Stress in the underlying market for bonds backed by household mortgages — which factors into the price consumers pay — has also pushed rates higher. The U.S. central bank is expected to interest raise rates by another 0.75 percentage points at its meeting next month.
The rapid rise in borrowing costs has already taken a toll on the housing market, shutting out many would-be home buyers. Existing home sales in September fell nearly 24 percent from the year prior, according to the National Association of Realtors.
At the same time, the national median mortgage payment in September rose to $1,941, up 5.5 percent from August, according to a report by the Mortgage Bankers Association, which was also released on Thursday. The median payment has jumped 40 percent, or $558, from the start of the year.
“With mortgage rates continuing to rise, the purchasing power of buyers is shrinking,” Edward Seiler, the associate vice president of housing economics at the bankers association, said in a statement. The median loan amount in September was $305,550, down from the February peak of $340,000, its highest point since the inception of the association’s index in July 2009.
The volume of mortgage locks in September — that is, when applicants lock in a particular rate — fell nearly 60 percent from the same month last year, according to Black Knight, a data firm that tracks the mortgage market. Locks on mortgages for home purchases were down nearly 30 percent, while refinancing activity was 93 percent lower.
