US mortgage rates highest in 3 months as war weighs on housing market
It rises to 6.22%, adding hundreds of dollars annually to loan payments
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[LONDON] Mortgage rates in the US climbed for the third week in a row, further squeezing housing affordability as the war in the Middle East drives up costs.
The average 30-year, fixed-rate mortgage rate rose to 6.22 per cent, mortgage finance giant Freddie Mac said on Thursday (Mar 19), up from 6.11 per cent the week before. The last time mortgage rates were this high was the second week of December.
Mortgage rates dipped below 6 per cent in February, days before the war started, but they have been rising since then.
Iran’s retaliation to the US and Israeli attacks, including effectively blocking oil and gas exports from the region, has raised energy costs and concerns about inflation globally.
In response, the yield on 10-year Treasury notes, which underpins mortgage rates, has also climbed. For homebuyers, the higher mortgage rates can add hundreds of dollars annually to their loan payments.
Michael Pearce, the chief US economist at Oxford Economics, said that the war in the Middle East compounded affordability challenges for many Americans. But for the time being, the fighting was not likely to alter long-term decisions on major purchases such as home-buying.
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He added: “The longer this goes on, the more it’s likely to affect buyer behaviour.”
The fighting is weighing on other participants in the housing market, too. Higher prices for oil and gas translate into higher costs for materials for builders.
The National Association of Home Builders has reported that sentiment was already low among developers, who were now facing a higher degree of uncertainty.
“With headline risk remaining elevated, whether it’s tariffs or international issues, that is a headwind,” said Robert Dietz, the group’s chief economist. He added that fuel contributed about 3 per cent of the construction costs of a single-family home.
He noted that the outlook for the rest of the year was also troubling for developers, who were facing the prospect of higher financing costs.
The US Federal Reserve does not directly control mortgage rates, but it sets the rate that influences construction and land loans.
The central bank held interest rates steady at its meeting on Wednesday, and investors now expect that it will be more than a year before the Fed’s next rate cut.
The housing market has been stuck in the doldrums since the pandemic, when mortgage rates fell below 3 per cent, setting off a frenzy of home-buying and refinancing.
Since then, many homeowners had been reluctant to sell their homes because they would then face higher rates. With fewer homes on the market, prices have risen and sales have slowed.
Since peaking at 7.79 per cent in October 2023, the rates have slowly drifted lower, offering hope that the housing market was beginning to thaw.
“Before the war, we had expected a gradual recovery,” Pearce said. “With the war, that’s going to delay any recovery.” NYTIMES
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