Mortgage rates reach 2002’s peak.
Mortgage Rates Reach Highest Level in Over Two Decades
Mortgage rates have soared to their highest point in more than 20 years, causing concerns about affordability and the stability of the housing market. The Federal Reserve’s efforts to combat inflation have contributed to this surge.
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. This surpasses the previous peak in November, when rates reached 7.08%. The last time rates were this high was in March 2002.
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The average rate on a 15-year fixed-rate mortgage currently sits at 6.46%.
“The new reality has jolted the housing market: Home sales have fallen sharply since 2021, and homeowners, reluctant to give up their super-low mortgage rates, are staying put. Housing affordability has emerged as a persistent challenge,”
– Bankrate analyst Jeff Ostrowski
The Federal Reserve has been steadily raising interest rates since March 2022, with the rate target reaching its highest level since the dot-com bubble at 5.25% to 5.50%. Mortgage rates typically follow the Fed’s rate target, becoming more expensive when the central bank raises rates.
However, the housing market is currently in a unique position due to the prolonged period of low mortgage rates during the pandemic. Homeowners are reluctant to sell their properties, leading to inventory shortages and increased demand for new homes.
Despite concerns about affordability, the construction sector has remained strong, with housing starts increasing by 3.9% in July. This indicates a continued demand for new construction.
While builder confidence fell in August, the lack of resale inventory has supported the demand for new construction. Many homeowners choose to stay put due to their low mortgage rates.
Overall, the housing market faces challenges in terms of affordability, but the demand for new construction remains robust.
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