Surging mortgage rates hit 23-year high
The 30-year fixed mortgage rate this week climbed to 8%, reaching that level for the first time since 2000, according to Mortgage News Daily.
The milestone arrives after months of rate increases. As recently as last April, the 30-year fixed mortgage rate stood below 5%, Mortgage News Daily data shows.
An aggressive series of interest rate hikes by the Federal Reserve since last year has pushed up the 10-year Treasury bond yield, which loosely tracks with long-term mortgage rates.
The Fed has increased interest rates to fight elevated inflation, attempting to slash price hikes by slowing the economy and choking off demand.
While inflation has fallen significantly from a peak of about 9% last summer, price increases remain more than a percentage point higher than the Fed's inflation target.
The persistence of elevated inflation has prompted the Fed to espouse a policy of holding interest rates at high levels for a prolonged period, which in turn has increased the 10-year Treasury yield and put upward pressure on mortgage rates.
Mortgage rates have increased for five consecutive weeks, according to data released by Freddie Mac last Thursday.
Major housing industry groups voiced "profound concern" about rising mortgage rates in a letter last week that urged the Federal Reserve to stop hiking its benchmark interest rate.
"The speed and magnitude of these [mortgage] rate increases, and resulting dislocation in our industry, is painful and unprecedented," wrote the real estate groups, among them the National Association of Realtors and the National Association of Home Builders.
High mortgage rates have dramatically slowed the housing market, since homebuyers have balked at the stiff borrowing costs, and home sellers have opted to stay put with mortgages that lock them into comparatively low rates.
Mortgage applications have fallen to their lowest level since 1996, the Mortgage Brokers Association said earlier this month.
Sales of previously owned homes, meanwhile, plummeted more than 15% in August compared to a year ago, according to the National Association of Realtors. The slowdown has coincided with a sharp rise in costs for potential homebuyers.
When the Fed initiated the rise in bond yields with its first rate hike of the current series, in March of 2022, the average 30-year fixed mortgage rate stood at just 4.42%, Mortgage News Daily data shows.
Each percentage point increase in a mortgage rate can add thousands or even tens of thousands in additional costs each year, depending on the price of the house, according to Rocket Mortgage.
Speaking at a press conference in Washington, D.C., last month, Fed Chair Jerome Powell acknowledged the continued effect on mortgages of rising interest rates, noting then that activity in the housing market "remains well below levels of a year ago, largely reflecting higher mortgage rates."
The Fed expects to raise rates one more time this year, according to projections released last month. The central bank plans to make its next rate-hike decision in early November.
