Mortgage rates surged to the highest level since 2007, with higher borrowing costs turning the screws even tighter on the quickly cooling US housing market.
The average for a 30-year, fixed loan was 6.7%, up from 6.29% last week, Freddie Mac said in a statement Thursday. Rates tracked a surge in 10-year Treasury yields, which approached 4% earlier this week.
Historically low mortgage rates fueled the pandemic housing rally, but borrowing costs have more than doubled since starting the year near 3%. The rapid jump has undermined buying power for house hunters and dragged down real estate prices as the Federal Reserve tries to tackle inflation.
“The uncertainty and volatility in financial markets is heavily impacting mortgage rates,” said Sam Khater, Freddie Mac’s chief economist.
Mortgage rates dipped briefly below 5% at the beginning of August, but have now increased nearly 2 percentage points since then. Data released this week showed that homes prices in 20 US cities posted a monthly decline in July for the first time since 2012. Seattle, San Francisco, and San Diego posted the biggest drops as expensive West Coast markets fall fast.
US pending home sales fell in August for the seventh time this year, dropping to the lowest level since 2011, excluding the immediate aftermath of the pandemic, according to the National Association of Realtors’ index released Wednesday. Sales in the Northeast dropped 3.4% month over month and 19% year over year compared with August 2021.
It’s a stark turn after more than two years of a housing boom that pushed real estate prices in the United States to record highs. And it’s likely to get worse as rates climb toward 7%, a level not seen since 2002.
“The huge surge in mortgage rates over the last nine months has squashed many buyers’ budgets, leading to a significant pullback in transactions,” said George Ratiu, manager of economic research at Realtor.com. “With monetary policy continuing to tighten, mortgage rates are expected to continue climbing.”