Mortgage rates have topped 7% for the first time this year, a symbolically alarming standard that threatens to keep millions of potential home buyers and sellers on the sidelines in a U.S. housing market that increasingly shows signs of slowing. exceeded.
The average interest rate on 30-year mortgages, the most popular mortgage in the United States, rose to 7.1% this week, the highest level since November, Freddie Mac said Thursday. Mortgage rates reached a recent high of nearly 8% late last year, a level not seen since 2000.
As mortgage rates have risen in recent months, making home ownership more costly for buyers, potential sellers are keeping their homes off the market because they feel they are getting lower rates on their existing loans. This is effectively causing prices to rise. These factors have combined to create widespread dissatisfaction with the economy as inflation remains higher than expected.
“Prospective homebuyers are deciding whether to buy before interest rates rise further or hold off in hopes of lower rates later this year,” Sam Cater, chief economist at Freddie Mac, said in a statement. . “It remains unclear how many homebuyers will be able to withstand future interest rate increases.”
At the same time, the market slowed down. According to the National Association of Realtors, existing home sales in March were down 4.3% from a year ago and 3.7% from the same month last year.
Mortgage interest rates in April 2021 were approximately 3%, less than half of current interest rates. It began rising that year and continued to rise in 2022, when the Federal Reserve began raising benchmark interest rates to combat inflation. Inflation has since fallen significantly, but remains above the central bank's 2% target.
The Fed has signaled in recent months that it may keep borrowing costs high for an extended period of time amid stubborn inflation. The Fed's benchmark interest rate is currently at its highest level in 22 years.
Mortgage lenders are generally focused on 10-year U.S. Treasuries, which are tied to mortgage rates, and expectations that the Federal Reserve will keep interest rates high are pushing Treasury yields higher. The yield on the 10-year US Treasury note has risen since the beginning of the year and is currently around 4.6%.
Last month, NAR agreed to settle a lawsuit to eliminate standard sales commissions, which housing experts say could cause home prices to fall. Currently, sellers pay real estate agents a 5 to 6 percent commission, but that cost is typically passed on to buyers through a higher asking price.