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Mortgage Rates Reach Highest Level Since 2000


The Numbers

Mortgage rates have surged for the fourth consecutive week, reaching the highest level in two decades. The robust performance of the U.S. economy has played a significant role in this upward trend, indicating that the U.S. Federal Reserve might continue to increase rates.

At present, the average 30-year mortgage rate stands at 7.31%. This increase has led to a decrease in demand for home-purchase mortgages, marking the lowest level since April 1995.

Unfortunately, both purchase and refinancing activities have been negatively impacted by these rising rates. As a result, the market composite index, which measures mortgage application volume, has dropped by 4.2% to 184.8 for the week ending August 18.

Comparatively, this figure stood at 270.1 a year ago.

Key Details

The surge in mortgage rates has had a significant impact on home buyers’ budgets, as borrowing costs have increased substantially. The rise in rates over the past week has caused many potential buyers to retreat from the market, leading to a 5% decrease in the purchase index.

Similarly, homeowners looking to refinance their mortgages find little appeal in these higher rates, as reflected by a 2.8% decrease in the refinance index.

It is worth noting that rates have experienced a hike across the board. For homes sold at or below $726,200, the average contract rate for a 30-year mortgage stands at 7.31%. This represents an increase from the previous week’s rate of 7.16%, marking the highest level since December 2000.

For jumbo loans or mortgages for homes sold above $726,200, the rate stands at 7.27% compared to the previous week’s rate of 7.11%.

Mortgage Rates on the Rise

The average rate for a 30-year mortgage backed by the Federal Housing Administration has increased to 7.09% from last week’s 6.93%. Similarly, the 15-year mortgage rate rose to 6.72% from 6.57%.

Additionally, adjustable-rate mortgages experienced an increase, reaching 6.5% compared to the previous week’s 6.2%. The share of adjustable-rate mortgages has also risen to 7.6%, marking its highest level in the past five months.

Impact on the Housing Market

Unfortunately, the housing market is continuing to suffer due to positive economic news. This has resulted in rising interest rates and a decrease in home sales. Higher rates have discouraged homeowners from selling their properties since their purchasing power diminishes when searching for new homes.

Consequently, both the demand for home purchases and the supply of available listings have been declining, causing the market to come to a standstill. Unless there are indications of the economy slowing down, it is likely that the housing market will remain stagnant.

Insights from the M.B.A.

According to Joel Kan, deputy chief economist and vice president at the M.B.A., applications for home purchase mortgages have dropped to their lowest level since April 1995. Home buyers are withdrawing from the market due to the elevated rate environment and the erosion of their purchasing power.

Kan also noted an increase in the number of people opting for adjustable-rate mortgages. Some home buyers are willing to accept interest rate risks after an initial fixed period in order to lower their monthly payments.

Market Reaction

In early morning trading on Wednesday, the yield on the 10-year Treasury note (BX:TMUBMUSD10Y) exceeded 4.3%.

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