WASHINGTON (HPD) — The average long-term mortgage in the United States this week topped 7% for the first time in more than two decades, the result of the Federal Reserve aggressively raising interest rates to control inflation.
Mortgage buyer Freddie Mac reported Thursday that the crucial 30-year average rate rose from 6.94% the previous week to 7.08% this week. At this time a year ago, 30-year mortgage rates averaged 3.14%.
Rising mortgage rates reduce the purchasing power of homebuyers, meaning fewer people can buy a home at a time when home prices continue to rise, albeit more slowly than earlier in the year. The combination of high rates and home prices means that a typical mortgage payment for a homebuyer is hundreds of dollars higher than it was earlier this year.
“We’re really looking at this as a rise in mortgage rates that’s pretty drastically affecting affordability in the market, sharply reducing demand,” said Mike Fratantoni, chief economist at the Mortgage Bankers Association.
The last time the average rate was above 7% was in April 2002, a time when the United States was still reeling from the terrorist attacks of September 11, 2001, but six years before the housing market crash that triggered the Great Recession.
Many potential buyers have remained inactive as mortgage rates have more than doubled in the year, a trend that has plunged the booming housing market into a doldrums.
Existing home sales have declined for eight straight months as borrowing costs have become too high a hurdle for many Americans, who are already paying more for food, gasoline and other basics.
In a bid to tame inflation, the Fed has raised its benchmark rate five times this year, including three consecutive hikes of 0.75 percentage points that have pushed its short-term rate to a range between 3% and 3.25. %, the highest level since 2008. At their last meeting in late September, central bank officials forecast that, in the first weeks of next year, they would raise their benchmark rate to around 4.5%.
Although mortgage rates don’t necessarily reflect rate increases the Fed makes, they do tend to track the 10-year Treasury yield. This return is influenced by a number of factors, including investors’ expectations of future inflation and global demand for US Treasuries.
Veiga reported from Los Angeles.