US mortgage rates restart climb, increasing to 5.51%

MORTGAGE rates in the US rose, resuming an upward climb that threatens to further cool the housing market. 

The average mortgage for a 30-year loan jumped to 5.51 per cent from 5.3 per cent last week, Freddie Mac said in a statement on Thursday (Jul 14). It is up from 3.11 per cent at the end of last year.

Consumers have been staring down one of the fastest increases in mortgage rates in decades, a run that has started to soften the market. That has led to more buyers shying away from the house hunt, given the increased rates and high prices. 

The slowdown has been particularly pronounced in areas that were previously booming, including Bay Area cities such as San Francisco and San Jose in California. Nationwide, a higher percentage of home sales are being cancelled, with that measure ticking up in June to the highest level since April 2020, according to Redfin Corp.

“Mortgage rates are volatile as economic growth slows due to fiscal and monetary drags,” said Sam Khater, Freddie Mac’s chief economist. “With rates the highest in over a decade, home prices at escalated levels, and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans.”

Markets have been reacting to inflation that reached a fresh 4-decade high in June and risks of a more uncertain economic outlook. The high inflation print has spurred speculation that Federal Reserve officials might have to consider a 100 basis-point hike at the meeting later this month. JPMorgan Chase chief executive office Jamie Dimon warned on Thursday that there is a serious set of issues that the economy faces.

SEE ALSO

Rents in US rise at fastest pace since 1986, buoying inflation

US mortgage rates plunge to 5.3% in biggest drop since 2008

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“The Fed has been walking a tightrope of gradually increasing borrowing costs while trying to avoid a knee-jerk reaction from consumers and businesses,” George Ratiu, Realtor.com’s manager of economic research, said. “However, with inflation soaring, the runway for a soft landing is shrinking considerably, as are the chances of avoiding a recession.”

At the current 30-year average, a borrower with a US$300,000 mortgage would pay US$1,705 a month, roughly US$422 more than at the end of last year. BLOOMBERG