Mortgage rates reach 20-year peak, may climb higher and persist for months.

Mortgage ⁢Rates Reach 21-Year High, Homebuyers Face Uphill Battle

Mortgage​ rates have‍ recently​ shattered a 21-year record, leaving those hoping for a decline in rates disappointed. According to Freddie⁤ Mac, the average ⁣rate ⁣on a ‍30-year fixed-rate mortgage now stands at ‌7.09%, more ⁢than⁣ double the ⁣pre-interest rate hike average. Unfortunately, there’s more bad news for homebuyers as rates could potentially climb even⁢ higher.

Expert Predicts Rates Will Continue to Rise

Stephen ⁢O’Connor, a research‍ professor of real⁣ estate at the George Washington University School ‌of Business, believes that we haven’t reached the peak yet. In an ​interview⁣ with the ⁤Washington Examiner, he stated, “I don’t ⁤think we’re at the peak.”

The surge in rates has made homeownership unattainable for many households. In‍ 2020, the median ​mortgage payment was just‌ over $1,000‍ per ⁢month.‍ Fast forward to⁢ today, and the typical single-family home now requires a staggering‌ $2,234 per month, marking a shocking 116% increase in just three years.

The Fed’s Influence on Mortgage Rates

While the Federal Reserve doesn’t‌ directly control mortgage rates, its changes to ​short-term rates​ do impact longer-term securities. ​As the Fed raises ⁤interest rates, mortgage ⁣rates tend to follow suit.

Uncertainty Surrounding Future Rate Hikes

Many investors anticipate that the Fed will pause its⁤ rate hikes‌ at the upcoming ‌September‌ meeting.⁢ However, O’Connor disagrees, predicting⁢ another rate increase next month. He ‍believes that Fed Chairman Jerome Powell remains focused on combating inflation, despite positive economic indicators in ⁤other areas.

O’Connor explained, “Are ‌they done raising those rates? I‌ don’t think so. I think Powell is still very much​ concerned‍ with core inflation… there are other types of markers in the ether‌ there‌ that are raising concerns relative to wage ‍inflation, things of that nature.”

Inflation‍ and Economic⁤ Factors at ‌Play

Consumer price index inflation currently stands at 3.2%, higher than the ⁤Fed’s 2% target. However,⁤ “core inflation,” which excludes volatile food and energy prices, has‍ risen to 4.7% in the year ending in July.

O’Connor highlighted‍ several sources of ‍uncertainty that could influence the Fed’s decision-making. Mixed signals ‌from economic gauges, along ⁣with unknown factors like ⁣the slowdown in‍ China and the war in Ukraine, add complexity to the ‍situation.

Unpredictability of ⁤Mortgage Rates

Jeff Ostrowski, an​ analyst at Bankrate, emphasized the difficulty in predicting mortgage rates⁢ in recent years. Economists⁣ did not ‍anticipate rates⁤ dropping below 3% or rising as rapidly as they have.

Ostrowski explained, “It made sense ⁤that‌ mortgage rates fell when the Fed cut interest rates to zero and it ⁣made sense that they were ‌going to rise‌ when the ‌Fed started ​tightening, but ‍it’s… the intensity and the⁣ speed of the increase has really caught everyone by surprise.”

He also noted that ‌the 10-year Treasury yield closely mirrors ⁢mortgage rates. Over the past year, mortgage spreads, the​ gap ⁤between the 10-year Treasury and 30-year fixed-rate mortgages, have widened to three percentage points or more. The​ reasons behind this phenomenon remain⁤ unclear.

Long Road Ahead for Mortgage Rates

While there is hope that⁣ mortgage⁣ rates will gradually improve as the Fed begins to‌ cut rates, O’Connor‍ believes it will take⁢ time before rates return to pre-pandemic levels. Just before‌ the pandemic hit, rates ranged‍ from 3.5% to 4%, a far cry from the current⁣ 7.09%.

O’Connor⁤ concluded, “I don’t think that’s happening in the near-term at ⁣all… I just don’t‌ see that ⁢happening.”

The Fed’s ‌next meeting is scheduled for September 19 and 20. Most⁣ investors expect the ‌Fed to pause, with a ‍90% probability of rates remaining steady, according to CME Group’s FedWatch⁣ tool.

Click here to read more from the​ Washington Examiner.

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