Mortgage rates have risen to more than 7%, the highest in months, in the wake of the Federal Reserve's interest rate hikes, a sign of more trouble ahead for the housing industry and the broader economy.
As of Wednesday, the average rate on a 30-year fixed-rate mortgage was 7.09%, up nearly a full percentage point from the start of the year, according to the Mortgage Bankers Association. Mortgage rates are now the highest since November, when they previously shot to above 7%.
MOODY’S DOWNGRADES SEVERAL US BANKS AMID 'ONGOING STRAIN' IN THE BANKING SECTOR
“Treasury yields rates rose last week, and mortgage rates followed suit, due to a combination of the Treasury’s funding announcement and the downgrading of the U.S. government debt rating. Rates increased for all loan types in our survey,” said Joel Kan, the Mortgage Bankers Association’s vice president and deputy chief economist.
Mortgage application volume also fell for a third straight week over the period ending Aug. 4. Additionally, the group’s refinance index was 37% lower than the same week one year ago.
The housing market is in a complicated place right now. After economists characterized the housing market as being in a recession last year, it has shown some signs of heating back up — despite the high mortgage rates.
May’s new home sales data surprised economists because they showed a leap in sales, although those numbers were later revised down. Some analysts had concluded that new home sales were rising because mortgage rates have increased so much, owners of existing homes who have mortgages with rates locked in before 2022 are shying away from selling because they want to keep their historically low rates.
That means less existing home inventory on the market, making new homes more of a hot commodity.
But the June report for new home sales showed sales fell 2.5% to a seasonally adjusted annual rate of 697,000, further complicating the country’s housing picture. The decline could signal more pain to come, not just for the housing market but for the broader economy as the Fed keeps interest rates high.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The central bank’s target rate is between 5.25% and 5.50%, the highest since the dot-com bubble more than two decades ago.
“In a break with the recent pattern, new home sales surprised to the downside in June and sales for prior months were revised lower,” Oxford Economics said in a note. “We expect new home sales to soften further as the economy enters a recession and the labor market softens.”