Mortgage interest rates hit highest level in more than 20 years
After a fourth week of increases, average rates reached 7.09% this week, passing last fall's peak.
Key points:
- Mortgage rates are now at the highest level since the spring of 2002.
- The upward trend is tied to a strong economy and an elevated 10-year treasury yield, economists say.
- It's expected that home sales will continue to be sluggish heading into the fall, though price drops aren't likely.
For all the buyers and sellers waiting for mortgage rates to fall, it's looking more like a case of wishful thinking.
The 30-year-fixed rate rose for a fourth straight week, hitting its highest level since the spring of 2002. The average rate was 7.09%, according to Freddie Mac's weekly survey, up from 6.96% the week before. The 15-year fixed rate was at 6.46%, up from 6.34% a week ago.
And it doesn't appear that relief is coming, at least not in the short term: Mortgage News Daily estimated the 30-year fixed rate was 7.37% as of Thursday morning, Aug. 17.
Why is the rate trending up even as inflation continues to cool? One big factor is the 10-year treasury yield, said Chen Zhao, who leads the economics team at Redfin.
Zhao said the yield is elevated due to investor concerns about the U.S. debt load and long-term expectations about where interest rates need to be when the government isn't trying to stimulate or slow the economy.
"Still, it's possible mortgage rates could decline even if the 10-year treasury remains high," Zhao said, noting that the difference between the treasury yield and mortgage rates has been larger than usual.
Strong economic data, including consumer spending and wage growth, could also keep mortgage rates elevated, said Jiayi Xu, an economist for Realtor.com. One possible sign of relief came from the Federal Reserve's notes, however, which indicate the Fed may take a "wait-and-see" approach in September and put a pause on key interest rate hikes, said Xu.
These conditions are likely setting the housing market up for a very slow September and October as buyers and sellers remain on the sidelines, said Lisa Sturtevant, chief economist for Bright MLS.
But that doesn't mean home shoppers will find any bargains.
"Even though the overall housing market will be cool this fall, don't expect large price drops in most local markets," Sturtevant said.
With rates at this level, fewer consumers are applying for mortgage loans. Applications dropped another 0.8% this week, according to the Mortgage Bankers Association. That has put purchase applications at the lowest level since 1995, according to Odeta Kushi, chief economist at First American.