This marks the highest mortgage rate since October of 2008 when the average rate was 6.93%.
This increase is attributed to the rising bond yields, accelerated by the Federal Reserve’s $2 trillion asset purchases. The current average rate is 6.64%, 50 basis points higher than last year. Even though this rate is still relatively low compared to historical averages, it is putting some potential homebuyers in a financial bind.
The rising rates are also having an impact on refinancing activity. Refinancing applications have declined for the second week in a row as many homeowners view the current rates as too high. Refinancing activity had been on the rise earlier this year but has recently seen a decrease despite the fact that rates remain low.
Despite the rise in rates, overall mortgage originations and approvals are up due to an increase in housing demand. Home sales in June hit their highest level since 2006, driven by record-low mortgage rates. This trend is expected to continue even as rates start to creep higher.
However, not everyone is benefitting from this trend. Many first-time buyers and lower-income households are being priced out of the market due to the increasing costs. Additionally, the housing market remains tight with current inventory levels low compared to previous years. This could further limit potential buyers who are looking to purchase a home.
Going forward, it remains to be seen if the rising rates will be able to withstand the pullback in refinancing activity and sustained demand for housing. A major factor in determining this will be how the Federal Reserve responds to the current environment. If they are willing to keep cutting interest rates or increasing asset purchases, then mortgage rates could remain at more favorable levels for potential buyers.
Analysis:
The current mortgage rate environment is characterized by a steady increase, reaching a level unseen since October 2008 when the average rate was 6.93%. This increase is attributed to the Federal Reserve’s $2 trillion asset purchases. Despite the rise in rates, overall mortgage originations and approvals are up due to an increase in housing demand. However, refinancing activity has seen a decrease due to the current rates being viewed as too high. In addition, the housing market remains tight which could limit potential buyers.
Going forward, whether rates will be able to stay at favorable levels depends on how the Federal Reserve responds to the current economic conditions. If they are willing to keep cutting interest rates or increasing asset purchases, then mortgage rates could remain low. Otherwise, it may be difficult for potential buyers and those looking to refinance to take advantage of lower rates. It is also important to note that the price increases are negatively affecting first-time buyers and lower-income households, making it more difficult for them to enter the housing market.
This article was contributed on Dec 21, 2023
