US mortgage rates hit 20-year high, squeezing homebuyers and refinancers.
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The average long-term US mortgage rate has jumped to 7.09% this week, the highest level in more than 20 years, according to Freddie Mac12. This is a sharp increase from two years ago, when the rate was just 2.86%. The rise in mortgage rates poses a serious challenge for potential homebuyers and homeowners who want to refinance their mortgages, as they will have to pay more interest and face higher monthly payments. This will limit how much borrowers can afford in a market which is already unaffordable for many americans.
With prices even higher than they were a year ago in many markets, crossing the 7% mortgage rate threshold again could be what sets in motion a major contraction in the housing market this fall.
Lisa Sturtevant, chief economist for Bright MLS
What is behind the rate hike?
The main reason for the increase in the interest rate is the rising inflation in the US economy. Inflation is the general increase in the prices of goods and services over time. It reduces the purchasing power of money and erodes the value of savings and investments. The US inflation rate has reached 5.4% in September 2023, the highest level since 1990. This means that the cost of living has gone up significantly and people have to spend more money to buy the same things.
The rising inflation has also pushed up the 10-year Treasury yield, which is the interest rate that the US government pays to borrow money for 10 years. The yield reflects the expectations of future economic growth and inflation. The yield was at 4.30% on Thursday, the highest level in nearly a year. The yield influences the mortgage rates because lenders use it as a benchmark to price their loans. When the yield goes up, so do the mortgage rates.
Another factor that contributes to the high mortgage rates is the low supply of homes for sale, which has driven up the home prices and made it harder for buyers to find affordable options. The low inventory is partly due to homeowners who locked in low rates in the past and are reluctant to sell and move to a higher rate on a new property.
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