Mortgage rates rise to highest level since 2007 after latest Fed rate hike
Mortgage rates rise to highest level since 2007 after latest Fed rate hike

Mortgage rates rise to highest level since 2007 after latest Fed rate hike

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The average long-term US mortgage rate jumped more than a quarter point this week to the highest level since 2007 as the Federal Reserve intensified its efforts to contain decades of high inflation and cool the economy.

Mortgage buyer Freddie Mac reported Thursday that the 30-year rate rose to 6.29%, from 6.02% last week. It was the highest since August 2007, a year before the housing market crash triggered the Great Recession.

The average rate for 15-year fixed-rate mortgages, popular with those looking to refinance their homes, jumped to 5.44% from 5.21% last week. That’s the highest rate since 2008. Last year the current 15-year mortgage rate was 2.15%.

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Fast-rising mortgage rates threaten to sideline more homebuyers after more than doubling by 2022. Last year, potential homebuyers saw prices well below 3%.

On Wednesday, the Federal Reserve raised its benchmark interest rate by three quarter points again in a bid to contain the economy, the fifth gain this year and the third consecutive 0.75 percentage point gain.

Perhaps nowhere is the effect of the Fed’s actions clearer than the housing sector. Existing home sales have declined for the seventh month in a row as rising costs to borrow money put homes out of reach for more people.

The National Association of Realtors said on Wednesday that existing home sales dropped to 4.8 million last month, down 0.4% from July. Home sales fell nearly 20% over the past year and are at their slowest annual pace since May 2020.

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“Rising mortgage rates are clearly holding back the housing market,” said NAR chief economist Lawrence Yun.

The national median house price jumped 7.7% in August from a year earlier to $389,500. As the housing market has cooled, house prices have been rising at a more moderate pace after surging annually by about 20% earlier this year. Prior to the pandemic, the average house price was up about 5% per year.

In the four weeks ending September 11, home listings fell 19% from a year earlier, the biggest drop since May 2020, real estate broker Redfin found.

Many potential homebuyers opt out of the market because the higher rates add hundreds of dollars to the monthly mortgage payment. Home prices and higher interest rates have pushed mortgage payments on a typical home from $897 to $1,643 per month, an 83% increase over the past three years, according to Zillow.

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On the other hand, many homeowners are reluctant to sell because they are likely locked in a much lower rate than they will get on their next mortgage.

MoneyWatch: Mortgage rates in the US top 6% for the first time since 2008 as apps fall


The Fed’s move Wednesday increased its benchmark short-term interest rate, which affects many consumer and business loans, to a range of 3% to 3.25%. highest level since early 2008.

Each 0.25 percentage point increase in the Fed’s benchmark interest rate translates to an additional $25 per year in interest on the $10,000 debt. That means a recent 0.75 percentage point increase would add an additional $75 in interest for every $10,000 owed.

But that’s on top of borrowing costs that have soared this year. The five Fed hikes so far in 2022 have raised interest rates by a combined 3 percentage points, or $300 of interest added on every $10,000 owed.

Fed officials predict that they will further raise their benchmark interest rate to around 4.4% by year-end, a full point higher than they had imagined as recently as June. And they expect to raise rates again next year, to around 4.6%. That would be the highest level since 2007.

By raising lending rates, the Fed makes it more expensive to take out mortgages and auto or business loans. Consumers and businesses may then borrow and spend less, cooling the economy and slowing inflation.

“The slowdown in housing prices that we’re seeing will help bring some sort of price closer to rents and other housing market fundamentals and that’s a good thing,” Fed Chair Jerome Powell said Wednesday at a press conference to discuss the latest interest rates. increase.

Mortgage rates don’t necessarily reflect Fed rate hikes, but tend to track yields on 10-year Treasury notes. That is influenced by a variety of factors, including investors’ expectations for future inflation and global demand for US Treasurys.

Recently, faster inflation and robust US economic growth have sent the 10-year Treasury rate sharply higher, to 3.65%.

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