Mortgage rates soared to a 21-year high this week, surpassing 7%, but the rise will make soaring prices and shortages of inventory even more difficult for homebuyers in the market. deaf.
Freddie Mac said Thursday that the average interest rate on its 30-year fixed-rate mortgage, the most popular mortgage in the United States, was 7.09%, up from 6.96% last week. A year ago, the 30-year interest rate was 5.13%.
Interest rates are now at their highest level since April 2002. In the meantime, homebuyers enjoyed years of lower interest rates, sometimes below 3% early in the pandemic.
But last year, when the Federal Reserve began raising rates to curb rapid inflation, interest rates began to rise sharply, making owners with low mortgage rates reluctant to put their homes up for sale. The market stagnated.
Existing home sales in June fell nearly 19% from a year earlier, according to the National Association of Realtors. Home prices continue to rise due to the rarity of properties. The median resale home price was $410,200 in June, the second highest since the organization began tracking data in 1999, down from a high of $413,800 a year ago. was only slightly lower.
And experts don’t think the housing market will cool down anytime soon. On Tuesday, Goldman Sachs upgraded its home price forecast, predicting prices will rise 1.8% this year and 3.5% in 2024. “Affordability remains a burden,” citing a tight housing supply and a tight housing supply, analysts at the bank said in a report. Stable housing demand.
That’s bad news for homebuyers like Kathleen Schmidt, who rents a house in Toms River, N.J., with her husband and two teenage children. She was trying to save her 20% as a down payment on a nearby townhome, but she’s discouraged by rising mortgage rates, she said.
“It really felt like we couldn’t buy a house anymore,” said Schmidt, who runs KMSPR, a public relations firm for authors and publishers.
“My eternal dream was to have a house one day because my parents didn’t do it,” she added. “I want to leave something for my children.”
Affordability is a persistent challenge for homebuyers, said Jeff Ostrowski, an analyst at personal finance firm Bankrate, and expects rates to remain high for some time.
“Mortgage rates are not going to fall and house prices are unlikely to fall,” he said. “I think buyers need to tighten their chinstraps and figure out how to make it work.”
A shortage of existing homes for sale has prompted buyers to consider new construction. The Census Bureau reported that new home sales in June were up nearly 24% from the same month last year. Housing starts, a measure of new housing construction, rose about 6% in July from a year earlier.
“Builders are profitable and their inventory margins are higher than they were a year ago,” said Lawrence Yun, chief economist at the National Association of Realtors. He added that domestic builders like KB Homes, Renner and Toll Brothers will continue to stock up to please Wall Street, but are focused on higher-priced homes.
Finding affordable options remains difficult for homebuyers. In an effort to cool the economy and keep inflation under control, the Federal Reserve has raised its policy rate, which supports borrowing costs across the economy, to its highest level in 22 years. Price pressures have eased with annual inflation slowing from nearly 9% last year to just over 3% last month, but the recent rise in gasoline prices may support inflation.
Central bank officials have suggested that one more rate hike is possible this year. They expect a rate cut in 2024, but believe it could take years for interest rates to return to the low levels that were common before the pandemic.
Mortgage rates typically track 10-year Treasury yields and are influenced by a variety of factors, including inflation expectations, Fed action, and investor reaction to all of them. On Thursday, 10-year bond yields topped 4.3% for the first time since 2007.