Mortgage rates in the United States rose nearly 20 points, to 7.16%, the final week of October. This is the highest level for a typical 30-year mortgage interest rate since 2001. The Mortgage Bankers Association also said the average rate for a 15-year fixed-rate mortgage grew 30 points from last week. They are now 6.39%.
To put things into perspective, a home for sale on the market today—at the median US price of $384,800—purchased with a downpayment of 20% would add about $750 to the monthly mortgage payment. This is at the current rate of 7.16%, which is nearly double the rate at the beginning of this year.
Of course, a bump in mortgage rates—particularly to this degree—will further continue to the cooling housing market as it typically means higher borrowing costs and scaled-back new home construction. In addition, some homeowners are going to be more hesitant to list their properties because it will mean they lose their lower interest rate. All of this could, obviously, result in sales and inventory will suffer.
The Mortgage Bankers Association also report that sales of previously-occupied homes in the US fell last month. That marks eight consecutive months of decline in existing-homes sales; and unfortunately, some economics believe this may be only the beginning.
Indeed, if the Federal Reserve keeps raising the benchmark interest rate, mortgages are very likely to continue climbing as well. As a matter of fact, National Association of Realtors Chief Economist Lawrence Yun recently told a group of investors, last week, that mortgage rates could hit 8.5%. That, of course, “would be another big shock to the housing market,” he said.
If there could be a silver lining to what would otherwise be a pretty dark cloud, it is that rising mortgage costs typically lead to more properties on the market. So for people who may be looking to buy a home, the increase in competition could result in lower prices. After all, new home prices shot up approximately 40% during the pandemic. Next year, however, the market will cool and demand will weaken further, according to Freddie Mac.
