Mortgage rates just touched their highest level since 2001, coinciding with still persistent fears about a recession and rising at a pace not seen since a 1980s downturn eerily similar to today.
The housing market could "re-freeze" if rates hit 8%, according to one economist.
American homebuyers now face an average 30-year fixed mortgage rate of 7.09%, according to borrowing data released by federal mortgage servicer Freddie Mac.
That’s a roughly 150% increase from the same week in 2021, when the average rate was 2.86%.
That’s the fourth-largest two-year increase in 30-year mortgage rates according to Freddie Mac data dating back to 1971 analyzed by Forbes; the three largest increases came over the last year as well.
At the onset of the last seven recessions, 30-year mortgage rates were an average of 11.6% higher than they were two years prior, comparing unfavorably to the average 1.1% two-year increase over the last 50 years.
The only other instances when mortgage rates jumped by 50% or more over a 24-month period came between 1979 and 1981, coinciding with a pair of recessions marked by surging inflation and an aggressive Federal Reserve, a perhaps troubling parallel for those hoping for the U.S. to avoid a recession in coming months.
Potentially more troubling, National Association of Realtors economist Lawrence Yun told MarketWatch he could foresee 30-year rates surging past 8%, “re-freezing” the housing market, a key component of economic activity, as measured by the nation's gross domestic product.
Mortgage rates, which loosely follow the federal funds rate set by the Fed, spiked from about 3% to over 6% in a six-month span last year as the central bank hiked interest rates at its quickest pace since the infamous Paul Volcker-led campaign four decades ago. Mortgage rates are still far below where they were in the 1980s, when they spiked at more than 18%. This hiking cycle, overseen by Fed chairman Jerome Powell, has yet to result in as severely painful economic conditions, but several indicators still point toward a recession on the horizon. Specifically, the difference in yields for short and long-term bonds, which is a proxy for investor confidence in the economy over the short-term, predicts a roughly two-thirds chance of a recession coming over the next year. The yield for 10-year U.S.-issued bonds surged to its highest level since 2008 this week, further indicating a breakdown in faith in the economy.
Homes have become considerably more expensive as mortgage rates doubled. The median home in the U.S. sold for $422,137 last month, according to RedFin data, compared to $318,100 a year ago.