Mortgage rates in US surge to 20-year high, reaching 6.92%

MORTGAGE rates in the US jumped to the highest since April 2002.

The average for a 30-year, fixed loan climbed to 6.92 per cent from 6.66 per cent last week, Freddie Mac said in a statement on Thursday (Oct 13).

Borrowing costs have soared since the beginning of the year, stopping the pandemic housing boom in its tracks, as the Federal Reserve (Fed) tries to tamp down inflation. Higher rates have sidelined potential buyers and driven sales down across the country.

“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,” Sam Khater, Freddie Mac’s chief economist, said in the statement. “The next several months will undoubtedly be important for the economy and the housing market.”

Investors are expecting the central bank to raise rates by a three-quarter point at its next meeting in early November after a key gauge of US consumer prices climbed to a 40-year high in Sepember. Freddie’s survey is collected Monday through Wednesday, meaning the data wouldn’t include any impact from the market’s reaction to the recent consumer price index release.

Mortgage rates have been pushing towards 7 per cent in recent weeks. Other measures have signalled that borrowing costs have crossed that threshold, with Mortgage News Daily, which releases a new figure more routinely, reporting that the rate on a 30-year fixed loan was 7.05 per cent on Thursday.

The monthly payment on a US$300,000 mortgage now would be US$1,980, about US$679 more than in January, when the 30-year average was 3.22 per cent.

“Homebuyers’ are responding to worsening affordability conditions by moving away from expensive cities, seeking lower-cost markets around the country,” said George Ratiu, a senior economist for Realtor.com.

Higher borrowing costs have put pressure on refinancing as well as purchases. A gauge of applications to purchase or refinance a home fell to the lowest level since 1997 last week, according to data from the Mortgage Bankers Association. The slump has led mortgage lenders including Angel Oak and Lower.com to cut workers.

When rates were much lower last year, more than a third of all mortgage holders had an incentive to refinance. Now, that number is under 1 per cent, according to Black Knight data.

“Any higher that we go in interest rates just puts further and further pressure on the market,” said Andy Walden, Black Knight’s vice-president of enterprise research strategy. BLOOMBERG