Mortgage rates leap above 6% for the first time in 14 years, further slamming home affordability as construction slows

Housing market — Newsday LLC / Contributor/Getty Images

The average rate on a 30-year mortgage topped 6% for the first time since 2008, Freddie Mac said Thursday.
The rate is now more than double that seen one year ago, making homes far less affordable.
With home construction slowing rapidly, buyers face a market with higher monthly payments and dwindling inventory.

Home shoppers just can't catch a break.

The average rate on a 30-year fixed-rate mortgage climbed above 6% for the first time since 2008 this week, Freddie Mac said in a Thursday report. The rate — now 6.02% — is more than double the levels seen one year ago and nearly three percentage points higher than where the benchmark rate stood at the end of 2021.

"Mortgage rates continued to rise alongside hotter-than-expected inflation numbers this week, exceeding six percent for the first time since late 2008," Sam Khater, Freddie Mac's Chief Economist, told Insider. "Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate."

The uptick reverses a recent dip in mortgage rates and makes home purchases even tougher for those perusing the market. Rates for home loans slid through much of the summer as investors projected a slowdown in the Federal Reserve's interest rate increases. For a couple of months, the housing market seemed to finally be giving buyers some relief.

Recent weeks brought an about-face. Fed Chair Jerome Powell hinted in a late-August speech that the Fed is far from ending its hiking cycle, leading markets to believe the September increase will be another larger-than-usual hike. Mortgage rates — which are tied to the Fed's benchmark — responded in kind, soaring above the highs seen in late June and fully reversing the summer slump.

The latest rally is likely in its early stages. The Fed is poised to raise interest rates by another 0.75 percentage points when it meets next week in a bid to cool demand and pull inflation lower. That will mark a third straight increase of that size and extend the most aggressive hiking cycle since the 1980s.

Market expectations hint several larger-than-usual increases are on the docket through the rest of 2022. Investor positioning signals the Fed will raise rates by three-quarters of a percentage point again in November and by a half-point in December, according to data from the CME Group.

Rate increases lift borrowing costs throughout the economy, affecting everything from car loans to credit-card debt. For home buyers, higher rates will translate to significantly pricier monthly payments on their mortgages. Overall home affordability is already the worst in 35 years, as home prices linger at record highs across much of the US. With rates on the rise, the housing downturn is likely to get worse.

Indeed, data from the Census Bureau shows that higher mortgage rates are turning the US real estate market frigid. In July, sales of new single-family homes in the US tumbled to an annualized pace of 511,000 from 585,000. Economists surveyed by Bloomberg expected sales to slow more gradually to a 575,000-unit pace. However, the reading reflects a 12.6% drop through July, marking the slowest overall pace of sales since January 2016.

"The market continues to absorb the cumulative impact of the large price and rate increases that led to a plunge in affordability," Khater, said in a statement. "As a result, over the rest of the year purchase demand will likely continue to drag, supply will modestly increase, and home price growth will decelerate."

With a downturn in buyer demand, homebuilders are slowing down their construction efforts. According to data from the Census Bureau, US housing starts — or the number of new homes that began construction in the month — plummeted 9.6% through July to an annualized rate of 1.4 million units. It was the slowest rate of home construction since February 2021.

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Contributer : Business Insider https://ift.tt/5KOxHI8

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