Mortgage Rates On The Rise Hitting 6.92% This Week
October 14, 2022
At its September meeting, the Fed increases interest rates and is expected to push mortgage-rates even higher.
This week, the average long-term mortgage rate in the United States rose to its highest level in more than 20 years. Given that the Federal Reserve has all but promised additional rate rises in its fight against persistent inflation, the rate of increase is expected to continue.
According to a report released by mortgage buyer Freddie Mac on Thursday, the benchmark 30-year rate increased to 6.92% from 6.66% the previous week. The rate was 3.05% at this time last year.
The typical rate on 15-year fixed-rate mortgages, which are popular among house buyers looking to refinance, increased from 5.9% to 6.09% last week. For the first time since the 2008 property market meltdown, it has surpassed 6%. The 15-year rate was 2.3% a year ago.
As average mortgage rates have more than quadrupled this year, many potential buyers have been forced off the market.
In an effort to rein in the economy and control inflation, the Federal Reserve raised its benchmark borrowing rate by another three-quarters of a point late last month. This was the Fed’s fifth hike this year and third straight increase of 0.75 percentage points.
There is not much indication that the Fed’s strategy is effective at this point.
Another government study released on Thursday revealed that consumer inflation, at 8.2%, remained far too high. Most economists anticipate another another significant hike when the Fed meets early in November, in addition to the 8.5% inflation rate at the wholesale level published on Wednesday.
Outside of the start of the pandemic, the housing industry has been hot for years, but the Fed’s strong action has tripped it up. Sales of existing homes have decreased for seven consecutive months as more people are unable to afford homes due to increased borrowing costs.
According to Freddie Mac, for a typical mortgage, borrowers who locked in during the previous year at the upper end of the rate range would pay several hundred more than borrowers who signed contracts at the lower end of the range.
Mortgage rates typically follow the yield on the 10-year Treasury note rather than necessarily reflecting Fed rate rises. This is affected by a number of variables, such as investor expectations for future inflation and the demand for US Treasury securities abroad.
The Fed increases borrowing costs, making it more expensive to get a mortgage, a vehicle loan, or a business loan. After that, it is likely that people and businesses would borrow less and spend less, which will limit inflation and cool the economy.
The government estimates that the U.S. economy contracted at a 0.6% annual rate in the second quarter that ended in June, despite a labor market that is still quite strong.
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