US Mortgage Rates Reach Three-Year High

This week, the average long-term mortgage rate in the United States surged to its highest point in nearly three years.

According to mortgage buyer Freddie Mac, the benchmark 30-year fixed-rate mortgage climbed to 7.28%, an increase from 7.03% just a week ago. This marks the most significant jump we’ve seen in several years.

If we look back a year, the average rate was notably lower at 6.34%.

This increase represents the sixth consecutive week of rising mortgage rates.

Now, the average rate is at its peak since November 22, 2023, when it was reported at 7.29%.

Similarly, borrowing costs associated with 15-year fixed-rate mortgages, commonly chosen by those refinancing, also rose this week.

This average rate went up to 6.60% from last week’s 6.42%. In comparison, it was 5.55% a year ago.

Such higher mortgage rates can significantly raise monthly payments for borrowers, often resulting in reduced purchasing power for homebuyers. It can also lead many potential buyers to postpone their home purchases.

Interestingly, back in late February, the 30-year mortgage rate dipped to 5.98%, which was the lowest it had been since late 2022.

Now, that roughly one-percentage-point rise translates to about an extra $276 in monthly costs for someone financing a $400,000 home loan at the current average rate.

Of course, how much a borrower can secure depends on various factors like their income, credit score, and other circumstances, which means some might qualify for better rates than the average.

This year, the housing market has faced significant challenges, primarily due to these high mortgage rates. The increase has been notable since the US and Israel’s recent military actions in Iran at the end of February.

Mortgage rates often respond to factors like inflation, the Federal Reserve’s policies, and what bond market investors anticipate for the economy.

It’s important to note that they commonly follow the direction of the 10-year Treasury yield, which lenders use to price home loans.

Recently, fears of rising inflation due to escalating oil prices have led to higher yields. For instance, the 10-year Treasury yield was around 3.97% in late February, prior to the conflict, and surged to 5.27% during midday trading on Thursday.

This current rate puts us approximately where we were in 2007, just before the financial crisis that was triggered by the real estate market.

High yields can slow the economy overall, making borrowing costlier for everyone, while also putting pressure on stock prices and other investments.

Since 2022, the US housing market has been struggling after mortgage rates began to climb from their pandemic-era lows.

Sales of previously occupied homes in the US were nearly stagnant last year, reaching a 30-year low.

In August, the National Association of Realtors reported a 2% decline in existing home sales from July, translating to a seasonally adjusted annual rate of 3.98 million units, marking the slowest pace in over a year.