Mortgage rates surge past 7%, signaling market concerns.
Mortgage Rates Surge to Highest Level in Months
Mortgage rates have skyrocketed to over 7%, marking the highest level in months. This surge comes as a result of the Federal Reserve’s interest rate hikes, signaling potential trouble for both the housing industry and the broader economy.
According to the Mortgage Bankers Association, the average rate on a 30-year fixed-rate mortgage now stands at 7.09%, a significant increase of nearly a full percentage point since the beginning of the year. These rates haven’t been this high since November, when they previously surpassed the 7% mark.
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“Treasury yields rates rose last week, and mortgage rates followed suit, due to a combination of the Treasury’s funding announcement and the downgrading of the U.S. government debt rating. Rates increased for all loan types in our survey,” explained Joel Kan, the Mortgage Bankers Association’s vice president and deputy chief economist.
Furthermore, mortgage application volume has declined for three consecutive weeks, with the refinance index being 37% lower compared to the same week last year.
The housing market finds itself in a complex situation. Despite the high mortgage rates, it has shown signs of heating back up after being characterized as in a recession last year.
In May, new home sales data surprised economists with a significant leap, although those numbers were later revised down. Some analysts attributed the rise in new home sales to the substantial increase in mortgage rates. Existing homeowners with locked-in low rates are hesitant to sell, resulting in less existing home inventory and making new homes more sought after.
However, the June report for new home sales revealed a 2.5% decline, further complicating the housing market and potentially impacting the broader economy as the Federal Reserve maintains high interest rates.
The central bank’s target rate currently stands between 5.25% and 5.50%, the highest since the dot-com bubble over two decades ago.
“In a break with the recent pattern, new home sales surprised to the downside in June, and sales for prior months were revised lower,” noted Oxford Economics. “We expect new home sales to soften further as the economy enters a recession and the labor market softens.”
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