Following Fed Hike, Mortgage Rates Surge to Highest Level Since 2008By RISMedia Staff
Following another historic 75 basis point rate increase by the Fed this week, mortgage rates followed suit, rising to their highest level in 14 years, experts noted.
The 30-year fixed-rate mortgage (FRM) averaged 6.29% this week, up from 6.01% last week, according to the latest Primary Mortgage Market Survey® (PMMS®) released by Freddie Mac Thursday. Key findings this week:
“The housing market continues to face headwinds as mortgage rates increase again this week, following the 10-year Treasury yield’s jump to its highest level since 2011,” said Sam Khater, Freddie Mac’s chief economist. “Impacted by higher rates, house prices are softening, and home sales have decreased. However, the number of homes for sale remains well below normal levels.” Realtor.com® Manager of Economic Research, George Ratiu, commented: “The Freddie Mac fixed rate for a 30-year loan surged this week hitting 6.29%—the highest level since October 2008. This builds on the upward momentum of the past 5 weeks and follows the 10-year Treasury’s ascent past the 3.5% mark. Capital markets widely anticipated the Federal Reserve’s FOMC announcement that it would continue its monetary tightening in order to tame high-riding inflation. Fed Chairman Powell remarked this week that the economy remains on a “modest growth” path, with solid job gains and low unemployment. He also highlighted this week’s surprising ramp-up in Russian forces, signaling further military actions which are expected to continue disrupting global supply chains and add upward pressure on inflation. “The Fed’s 75 basis point rate increase will have a measurable impact on shorter term borrowing costs. Consumers can expect to see the rates on adjustable-rate mortgages, credit cards, automotive and personal loans increase in the next few weeks. In addition, the Fed’s new thresholds for balance sheet reduction went into effect on September 1 which means that the bank will allow $60 billion in Treasury assets and $35 billion of mortgage-backed securities to mature and roll-off. These actions will cause mortgage rates to continue rising until inflation shows signs of more significant moderation. “For housing markets, higher borrowing costs are the very remedy the Fed is prescribing in order to cool demand and lower overheated prices. The monetary tightening is achieving its intended purpose, with sales of existing homes down for seven consecutive months and August sale prices down 6% from their June peak. While sale prices were still higher than a year ago, the growth moderated into single digits, a clear sign that the exponential growth of the past several years has slowed. “The buyer of a median-priced home, at today’s rate and using a fixed 30-year mortgage, is weighing a monthly payment that is about $900 per month higher than a year ago, which adds more than $10,000 to their yearly financing burden. For buyers watching their take-home pay shrink due to higher prices, and shopping budgets diminish due to rising rates, today’s housing market remains highly unaffordable. In many locations, price cuts may be the only viable option to restore housing balance and affordability,” Ratiu concluded. |
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