US mortgage rate climbs to 7.16%, matching highest since 2001
THE US 30-year mortgage rate rose to 7.16 per cent last week, matching the highest since 2001 and crimping both sales and refinancing activity.
The contract rate on a 30-year fixed mortgage rose 7 basis points to 7.16 per cent in the week ended Aug 11, according to Mortgage Bankers Association data out on Wednesday (Aug 16). The gauge of home-purchase applications slipped for a fifth-straight week to the second-lowest level since 1995.
The latest jump in borrowing costs presents a fresh headwind for the housing market, just as the sector had been showing signs of finding its footing. The impact from high mortgage rates is two-fold: it restrains demand and keeps many Americans who are sitting on lower mortgage rates from listing their homes.
A lack of homes listed for sale are also pushing prices higher, with recent price gains helping the US housing market erase the roughly US$3 trillion it lost in value during the past year’s slowdown, according to Redfin. Price gains coupled with higher rates are squeezing affordability even more.
Higher rates could exacerbate inventory issues as owners seeking to move confront the prospect of giving up much lower rates. About nine in 10 owners with mortgages have interest rates under 6 per cent, according to Redfin.
The Federal Reserve’s efforts to tame inflation through higher interest rates led to a rapid deterioration in the sector last year, dragging down economic growth. Existing-home sales have remained tepid amid limited supply, but new-home sales have rebounded, supported by more available inventory.
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The pickup in the housing market has fuelled more optimism among economists that the US may be able to avoid recession. Another report on Wednesday showed new-home building rose last month, and applications to build single-family homes advanced to the highest in more than a year.
But separate data on Tuesday showed homebuilder sentiment fell for the first time this year on concerns about higher borrowing costs. While lean inventory has generally encouraged more home construction, higher mortgage rates may mean builders have to offer more incentives to lure prospective buyers.
Mortgage News Daily, which updates more frequently, put the 30-year rate at 7.26 per cent on Tuesday.
The MBA’s gauge of refinancing applications fell 1.9 per cent, a fourth-straight decline. The overall measure of mortgage applications fell 0.8 per cent.
The survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75 per cent of all retail residential mortgage applications in the US. BLOOMBERG
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