Mortgage rates in the United States hit their highest level in more than two decades and are likely to go higher as the Federal Reserve pushes for more aggressive rate hikes in its fight against inflation.
The average 30-year fixed rate climbed to 6.92% from 6.66% last week, the highest reported mortgage rate in more than twenty years, Freddie Mac said in a report Thursday. Mortgage rates have been on a relentless climb over the past 12 months, with a 30-year fixed rate more than doubling from 3.05% in October 2021 to 6.92% a year later.
“Rates resumed their record-setting climb this week, with the 30-year fixed-rate mortgage reaching its highest level since April of 2002,” Sam Khater, Freddie Mac’s chief economist said in the report.
“We continue to see a tale of two economies in the data: strong job and wage growth are keeping consumers’ balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously. The next several months will undoubtedly be important for the economy and the housing market.”
Meanwhile, the 15-year fixed mortgage rose from 5.9% in September to 6.09% on October 13, its highest rate since the 2008-2009 financial crisis, according to the report. This rate has tripled on a year-over-year basis, soaring to 6.09% in October from 2.3% a year earlier.
The housing industry saw a surge in demand over the past two years, fueled by historically low interest rates and the shift from in-office jobs to remote positions spurred by the COVID-19 pandemic and the ensuing lockdown mandates.
For instance, an average homeowner who locks in prices at today’s rate will be stuck paying hundreds of dollars more a month for their mortgage versus had they locked in rates a year prior. The mix of higher mortgage rates and decelerating home prices have put recent homebuyers in a precarious financial position given industry-wide layoffs and increasing global recession fears.
Many prospective home buyers have been priced out of the market, despite seven months of decelerating home prices, Realtor.com reported. The mix of high borrowing costs and the decreasing amount banks will lend have forced many Americans to hit the pause button on their home search.
The purchasing power of an average American with a median salary of $71,000 has quickly eroded away amid 40-year high inflation and soaring interest rates.
With rate hikes expected to continue through 2023, would-be homeowners must pay more for a standard 20% deposit on a 30-year fixed mortgage, only to receive property with fewer square feet than a year or two before.
A down payment using the aforementioned fixed mortgage deposit could afford a $448,700 home when mortgage rates were 3.11% in January. Ten months later, a median $71,000 salary will scarcely afford a home valued at $343,000, according to George Ratiu, a senior economist at Realtor.com.
“Homebuyers are responding to worsening affordability conditions by moving away from expensive cities, seeking lower cost markets around the country,” said Ratiu in a statement.