US Mortgage Rates Rise for Third Consecutive Week, Hover Just Below 7%
In the week ending August 10, US mortgage rates experienced their third consecutive weekly increase, reaching an average of 6.96%. This marks a slight jump from the previous week’s average of 6.90%, according to data from Freddie Mac. A year ago, the average 30-year fixed-rate mortgage was significantly lower at 5.22%. While rates have been consistently above 6.5% since late May, they have managed to stay just below the critical 7% threshold.
**Home Affordability Suffers Amidst Rising Rates**
The surge in mortgage rates follows the Federal Reserve’s ongoing campaign of rate hikes, which has substantially impacted home affordability. As a result, purchasing a home has become more expensive due to the increased cost of financing mortgages. Homeowners who secured lower rates in the past are now reluctant to sell, compounding the issue of limited housing inventory. This combination of factors has placed significant pressure on potential homebuyers, making it challenging for them to enter the market.
**Market Insights and Economist Commentary**
Sam Khater, Freddie Mac’s chief economist, emphasized the link between the resilient economy, low unemployment rates, strong wage growth, and the upward pressure on mortgage rates. He noted that this connection historically supports solid purchase demand. Despite these economic factors, the persistently high rates are anticipated to extend affordability challenges for a longer period than initially projected.
**Inflation and Labor Market Data Influence Rates**
The Federal Reserve has recently emphasized its reliance on inflation and employment data in its monetary policy decisions. The July inflation report revealed a rise in inflation to 3.2% annually, compared to the 3% increase observed in June. This uptick was mainly attributed to the escalating costs of shelter, which contributed to 90% of the total inflation increase for the month. Economists are closely monitoring these developments, as they may impact the Fed’s upcoming decisions regarding interest rates.
**Market Responses and Future Outlook**
George Ratiu, the chief economist at Keeping Current Matters, highlighted the indirect influence of the Federal Reserve on mortgage rates. While the Fed doesn’t directly control mortgage rates, its actions significantly impact them. Ratiu pointed out that the current spread between the 30-year fixed mortgage rate and the 10-year Treasury is notably wide, historically standing around 300 basis points. This divergence is mostly seen during periods of high inflation and economic turbulence.
Experts expect that mortgage rates may begin to decrease once inflation subsides, typically with a lag of six to eight months. In the meantime, the housing market remains sensitive to the impact of elevated interest rates, as evidenced by a recent drop in mortgage application activity. The combination of higher rates and limited housing inventory has led to a slowdown in market activity during the summer months. Existing home sales have struggled, with the primary challenge arising from insufficient available properties to meet demand.
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