Two years ago, the average rate on a 30-year mortgage was just 2.86%.
WASHINGTON — The average U.S. long-term mortgage rate rose this week to its highest level in more than 20 years, bad news for homebuyers already challenged by the still-competitive housing market. due to the scarcity of homes for sale.
Mortgage buyer Freddie Mac said on Thursday that the average rate on a standard 30-year home loan rose to 7.09% from 6.96% last week. A year ago, the average was 5.13%.
This is the fourth consecutive weekly increase for the average rate and the highest since early April 2002, when the rate averaged 7.13%. The last time the average rate was above 7% was last November, when it was at 7.08%.
High interest rates can add hundreds of dollars in costs per month for borrowers, limiting how much they can afford in a market that is already too expensive for many Americans.
“With prices even higher than they were a year ago in many markets, breaking through the 7% mortgage rate threshold again could be to blame,” said Lisa Sturtevant, chief economist at Bright MLS. causing a major contraction in the housing market this fall.”
The most recent rate hike comes after 10-year Treasury yields surged, having stayed above 4% this month and are continuing to climb. Yields, which lenders use to price rates on mortgages and other loans, hit their highest level since October on Thursday morning and are close to 2007 levels.
Yields rose as bond traders reacted to multiple reports that the U.S. economy remains remarkably resilient, which could put pressure on inflation, prompting the Federal Reserve to There is a reason to keep interest rates higher for longer periods of time.
“The economy continues to grow better than expected and yields on 10-year Treasuries have increased, sending mortgage rates up,” said Sam Khater, chief economist at Freddie Mac. “Demand has been hit by affordability constraints, but low inventory remains the root cause of stalled home sales.”
High inflation has prompted the Federal Reserve to raise its benchmark interest rate 11 times since March 2022, lifting the federal funds rate to a 22-year high.
Mortgage rates don’t necessarily reflect Fed rate hikes, but tend to track 10-year Treasury yields. Investors’ expectations about future inflation, global demand for US Treasuries, and what the Fed does with interest rates can all affect home loan rates.
The average rate on a 30-year mortgage is still more than double what it was two years ago, when it was just 2.86%. Those ultra-low interest rates spurred a wave of home sales and refinancing. The markedly higher rates now are contributing to the scarcity of available homes, as homeowners who locked in lower borrowing costs two years ago are now reluctant to sell and jump into higher rates on new properties.
Lack of housing supply is also a big reason Home sales fell 23% in the first half of this year.
The average rate on 15-year fixed-rate mortgages, popular with people refinancing their homes, rose to 6.46% from 6.34% last week. Freddie Mac said a year ago the average was 4.55%.