Mortgage rates are rising again, leading to an increasing number of buyers leaving the housing market

Mortgage rates are rising again, leading to an increasing number of buyers leaving the housing market

A 30-year fixed-rate mortgage averaged 5.81% in the week ended June 23, up 5.78% a week earlier, according to Freddie McCae.

At this time last year, rates averaged 3.02%, and the last time rates were so high was in the winter of 2008.

“Fixed mortgage rates have risen by more than two full percentage points since the beginning of the year,” Sam Keter, chief economist Freddie Mecca, said in a statement. “The combination of rising rates and high real estate prices is likely to trigger the recent decline in existing home sales. However, in reality, many potential home buyers are still interested in buying a home, keeping the market competitive but equalizing the last two years.”

Despite the jumps, mortgage rates remain well below the historical highs of the last 40 years – especially the record 18.63 percent of the average rate in October 1981.

However, the sharpness of the current increase in mortgage rates combined with the jump in borrowing costs will eventually make consumers more cautious, said Abbey Omodunbi, assistant vice president and senior economist for The PNC Financial Services Group.

“I think we’ll probably see a further increase in mortgage rates by the end of the year,” Omodunbi said in an interview with CNN Business. “The Fed wants to see a reduction in housing activity.

The Federal Reserve does not determine the interest that borrowers pay directly on mortgages, but its actions affect them. Mortgage rates are usually accompanied by 10-year U.S. Treasury bonds. But rates are indirectly affected by Fed stocks on inflation. As investors see or expect an increase in interest rates, they often sell government bonds, which increases yields, and with it mortgage rates.

During last week’s policy-making meeting, the Fed raised its reference interest rate by 75 basis points, the largest increase in three decades. In public comments made since then, including testifying before Congress, Fed President Jerome Powell said central bank actions should help reduce demand in the national real estate market, which is heated.

Housing prices have risen over the past two years in part due to record low mortgage rates, pandemic-related migration patterns, the impact of investment firms buying residential real estate and the Fed’s purchases of mortgage bonds.

Rents and apartment prices continue to rise at double-digit rates in many areas.

“Housing prices should stop rising at such an incredibly fast rate,” Powell said at a hearing before the Senate Banking Committee on Wednesday. “Since the beginning of the pandemic, we have had a very, very hot … real estate market across the country. As demand for apartment buildings is moderate … you should see prices stop rising. ”
Still, the other side of higher mortgage rates amid high inflation and record housing costs could eventually charge millions of Americans from owning a home, according to Harvard University’s annual state of the nation report released Wednesday.

A year ago, a buyer who gave a 20% discount on a house with an average price of $ 390,000 and financed the rest with a 30-year mortgage with a fixed interest rate at an average interest rate of 3.02% had a monthly mortgage payment of $ 1,673, according to numbers from Freddie Mac.

At today’s rate of 5.81%, the monthly mortgage payment on the same house would be $ 2,187, which is a difference of $ 514.

Housing seems to be moving into a “new normal after the pandemic,” said George Ratiu, economic research manager at Realtor.com. Rents have reached record levels for the 15th month in a row, but the growth rate is slowing, he said, adding that the growth of apartment prices is also declining.

“Market prices will continue to adjust to fewer eligible customers and higher financing costs,” he said in a statement. “The transition from an overheated real estate market to a more sustainable one will take time. The good thing is that in the end we should see a healthier environment with more options and better value for many customers. “

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