The average 30-year home loan has hit a 20-year high slamming the door shut on some would-be homebuyers.
The rate is now at 7.09% — up from 6.96% last week and 5.13% this time last year.
It’s connected, in part, to the Federal Reserve’s seemingly never-ending rate hikes to cool inflation, but the approach is hurting both buyers and home sellers. With mortgage rates so high, nobody wants to move now.
“It’s ill-advised to keep raising rates,” said UMass Amherst economics professor emeritus David Kotz. “The Fed ought to ease up.”
Kotz told the Herald Thursday there’s not enough supply of housing and the economic stresses of the pandemic and war in Ukraine have shifted.
He called the Fed’s rate hikes a “painful tool” that should be put away.
High inflation drove the Federal Reserve to raise its benchmark interest rate 11 times since March 2022, lifting the fed funds rate to the highest level in 22 years.
Now mortgage lenders are laying off workers as hungry homebuyers remain frozen with sticker shock from the high rates that can add hundreds of dollars a month to a mortgage bill.
Stocks also fell Thursday as the economy takes this gut punch.
“With prices even higher than they were a year ago in many markets, crossing the 7% mortgage rate threshold again could be what sets in motion a major contraction in the housing market this fall,” Lisa Sturtevant, chief economist for Bright MLS, told the Associated Press.
Refinancing, a popular option for homeowners, is also chilled by the high rates.
The average rate on 15-year fixed-rate mortgages, popular with those refinancing their homes, rose to 6.46% from 6.34% last week. A year ago, it averaged 4.55%, Freddie Mac said.
This all hits as Massachusetts home prices barreled through a new record for the month of July, handily clearing a whopping $600,000 for the median single-family home, according to data released by the Warren Group and Massachusetts Association of Realtors.
Massachusetts Association of Realtors (MAR) likewise reported a 23.6% decline and a 4.3% increase to a record $640,000 median single-family price for the month of July.
Trends in the greater Boston area followed the state, according to the Warren Group, with prices spiking 4.7% on a year-over-year basis to $775,000. Boston area sales also fell for the month of July 23.2% year-over-year, reaching 2,063 sold.
That means with a mortgage rate of 7.09%, a home worth $775,000 with 20% downpayment will cost the homeowner $4,700-plus a month — taxes and insurance included.
Over 30 years, that’s $878,840 in interest, according to Bankrate.com mortgage calculator.
Associated Press material contributed.