Mortgage rates in the United States this week reached their highest level since 2008, having gained nearly three-quarters of a percentage point since early June, according to a report from Freddie Mac on Thursday.
The average rate for a Fixed mortgage over 30 years is 5.81%, compared to 5.78% last week. The average rate for a 15 year fixed loan rose to 4.92%, the highest since 2009, from 4.81% last week, Freddie Mac said.
Interest mortgage rates are skyrocketing as mortgage bond investors demand higher yields, fearing four decades of high inflation will eat away at their yields. More expensive financing has kept some buyers out of the market, causing home sales to plummet every month since the start of the year, according to data from the National Association of Realtors.
That could provide an opening for some buyers, who won’t have as much competition amid a years-long shortage of homes on the market.
“The combination of rising rates and high home prices is the likely driver of recent declines in existing home sales,” said Sam Khater, chief economist at Freddie Mac. “However, in reality, many potential buyers are still interested in buying a home, keeping the market competitive but stabilizing the past two years of scorching activity.”
Soaring house prices
The costlier financing comes on top of a record spike in house prices during the Covid-19 pandemic after a Federal Reserve bond-buying program drove borrowing costs to new lows more by a dozen times in 2020. In January 2021, the average US rate for a 30-year fixed mortgage hit an all-time low of 2.65%, according to Freddie Mac data stretching back five decades.
The median house price in the United States rose 15% from a year earlier to hit $407,600 in May, the first time it topped $400,000, NAR said on Tuesday. Meanwhile, existing home sales fell to a seasonally adjusted 5.4 million at an annualized rate, the lowest in more than a year, according to NAR data.
This drop in sales finally puts buyers in the driver’s seat, after nearly two years of sellers in the driver’s seat, said Maria Daou, real estate broker at Coldwell Banker Warburg in New York. There is a “definite downturn” in the market, she said, although that may be, at least in part, due to the end of school and the start of summer, when many families take usually vacation.
It’s now a buyer’s market
“My feeling is that we are entering a buyer’s market for a while,” Daou said. “Buyers are acutely aware of this, and I think it’s a mix of some who are waiting because of interest rates and the market crash, and others who may have more cash on hand and who are going to try to take advantage of sellers who have sold that might require a low offer now rather than an even lower offer in a few months.
Higher financing costs combined with record property prices have eroded affordability, especially for low-to-middle income families, said Nadia Evangelou, senior economist for NAR.
“Since the start of the year, buying a house has cost about $800 more each month,” Evangelou said. “These higher mortgage rates hurt affordability.”
The stock of available housing is increasing
The silver lining in a slowing market is the increase in the number of available properties, she said. The inventory of houses for sale late May hit a seventh-month high of 1.12 million, according to NAR data.
“While it’s promising to see more homes available on the market, more entry-level homes are needed,” Evangelou said.