Mortgage rates surge to their highest in the US in over three decades, intensifying pressure on potential home buyers and calming the housing market.
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The average rate for a 30-year loan increased from 5.23% to 5.78 % in the last week, according to a statement issued Thursday by Freddie Mac. The increase was the highest since 1987.
The housing frenzy started by the pandemic has now resulted in a slow start after two years of breakneck speed after the Federal Reserve’s actions to tame inflation. Wednesday saw Federal Reserve increasing its benchmark rates by 75 basis points, its biggest hike since 1994, as officials hinted that more hike is on the way.
Sam Khattar, the chief economist at Freddie Mac, said that the higher rates resulted from shifting perceptions about monetary policy and inflation. Higher mortgage rates will lead to cooling in the blistering activities seen in the housing market.
The highest average rates have been seen since 2008, with the new average of 5.8%, almost double of 2.93% seen at the same time last year for a 20-year mortgage loan. The mortgage date released Thursday saw an index drop for home builders.
Both investors and regular house buyers are contributing to the housing pullback. In the mid-Atlantic region, homes are not flying off the shelves fast as compared in recent years. In the luxury housing segment, sales were also down by 17.8 % in the three months through April.
This week saw Redfin Corp and Compass Inc announce layoffs of hundreds of staff. Glenn Kelman, CEO of Redfin, said they could be facing not months or years of lower sales and acknowledged that the estimates for May were 17% lower than actuals. According to data released Wednesday, homebuilder sentiments in the US fell to a two-year low in June.
At the new mortgage rates, if a home buyer takes a $300,000 mortgage, they have to pay $1756 for 30-year tenure. This is nearly $474 more than what a borrower would have paid last year. A home borrower with a $600,000 mortgage will have to shell out $950 more to $3500.
