Consumers face higher prices in almost every aspect of their lives. Currently, mortgage rates are high, limiting or fully priced housing options. A week ago, a $ 300,000 loan with a 5.23 percent 30-year fixed rate mortgage cost the borrower about $ 1,653 a month, excluding other costs such as taxes and insurance, said Lending Tree economist Jacob Channel. Is writing by e-mail. This week, the same loan costs $ 1,756 a month, or 5.78 percent. That’s an additional $ 103 a month, $ 1,236 a year, and $ 37,080 over the entire loan period.
The housing boom, supported by low interest rates, is beginning to subside. Prices haven’t eased yet and are rising, mainly due to low inventories. According to the latest Case-Shiller Home Price Index, home prices in March rose 20.6% year-on-year. However, sales are sluggish. The latest data available from the National Association of Real Estate Agents, pre-owned home sales in April, fell for the third straight month. Housing starts fell 14.4% from April, down 3.5% year-on-year, according to Census Bureau data released Thursday.
In addition to lowering sales of new and existing homes, higher interest rates have curbed the desire for mortgages. Volume has decreased by more than 50% compared to a year ago. The refinancing share of mortgage applications is at the second lowest level since December 2000.
As a result, real estate and mortgage brokers are abandoning their jobs. Compass has reduced non-broker staff by 10% and Redfin has announced that it will dismiss approximately 470 employees. PennyMacFinancial Services, a non-bank mortgage lender, has reduced 207 employees after reducing 230 employees in March.
The housing cooldown is due to the Federal Reserve raising the benchmark rate by 0.75 percentage points. This is the Fed’s third rate hike this year. At the May meeting, the central bank raised the federal funds rate by 0.5 percentage points. In March, when we raised the benchmark rate for the first time since 2018, we took the first step to lower inflation.
The Fed does not set interest rates on mortgages, but their behavior affects mortgages. The central bank has launched this initiative to raise many non-mortgage lending to curb the highest inflation in 40 years and reduce demand for goods and services.
Holden Lewis, NerdWallet’s Home and Mortgage Specialist, said: “The Federal Reserve has raised short-term interest rates to slow economic growth and curb inflation.”
“In response to last week’s inflation data, mortgage rates continued to rise this week in anticipation of a rise in federal funds rates this week,” said Hannah Jones, an economic data analyst at Realtor.com. “The interest rate tracked by Freddie Mac remains at 5, but other mortgage surveys showed interest rates above 6% earlier this week.”
Yields on long-term bonds rose this week, largely because investors expected positive moves. The Treasury yield for 10 years rose to its highest level in more than 10 years, reaching 3.49% on Tuesday and returning to 3.33% after the Fed’s announcement. The yield at the beginning of the year was 1.63%.
“30-year mortgage rates tend to follow the 10-year Treasury yield, and the 10-year Treasury reached the highest yield in 11 years,” said Steve Reich, Chief Operating Officer of the Finance of America Mortgage. I am writing by email. “We have seen 10-year government bonds rise as investors anticipate future rate hikes, and as a result, mortgage rates have followed suit and have recently risen. Mortgage rates will continue to be in the same range, keeping pace with the 10-year Treasury yield. “
Lewis expects mortgage rates to be less volatile in the near future.
“Mortgage rates tend to fluctuate in anticipation of the Fed’s rate hike, which indicates that the Fed’s rate hike is already part of the mortgage rate,” he said. “In other words, mortgage rates are more likely to fluctuate before the Fed’s meeting than after the Fed’s meeting. The next week or two will see big fluctuations in mortgage rates like last week. There will be no. “
Federal Reserve Chair Jerome H. Powell said at a press conference this week that he doesn’t think this scale of movement is common, but the Fed will rise another 0.75 percentage points next month. Suggested that there is a possibility.
“Given the rise in consumer prices last week to its 40-year high, it’s very likely that the Fed will raise inflation at a faster pace than originally expected and raise interest rates,” Reich said. writing. “Depending on where the Fed’s inflation is, interest rates may fall by the end of the year, but mortgage rates are expected to continue to rise over the coming months.”
Low interest rates have helped boost the resurgence of the US housing market after the Great Recession and push home prices to record levels. But after the pandemic hit a record low, rates are weeping. The 30-year fixed average, which started the year at 3.22 percent, reached 4 percent in March and reached 5 percent five weeks later. Economists expected interest rates to rise, but escalated much faster than expected.