30-year mortgage rate hits 6.29%, highest since 2008

Average long-term U.S. mortgage rates jumped more than a quarter point this week to their highest level since 2008 as the Federal Reserve steps up its efforts to rein in decades-high inflation and cool the economy.

Mortgage buyer Freddie Mac reported Thursday that the 30-year rate climbed to 6.29% from 6.02% last week. That’s the highest since October 2008, when the housing market crashed, triggering a recession.

Rapidly rising mortgage rates threaten to marginalize even more buyers after more than doubling in 2022. Last year, would-be buyers were eyeing rates well below 3%.

On Wednesday, the Fed raised its benchmark borrowing rate by another three-quarters of a point in an effort to constrain the economy, its fifth increase this year and its third consecutive increase of 0.75 percentage points.

Perhaps nowhere is the effect of Fed action more apparent than in the housing sector. Sales of existing homes have been falling for seven straight months as rising borrowing costs put homes out of reach for more people.

The National Association of Realtors said Wednesday that sales of existing homes fell 0.4% last month from July to a seasonally adjusted annual rate of 4.80 million.

Sales fell 19.9% ​​from August last year and are now at the slowest annual pace since May 2020.

The national median home price jumped 7.7% in August from a year earlier to $389,500. As the housing market has cooled, house prices have risen at a more subdued pace after jumping about 20% a year earlier this year. Before the pandemic, the median house price was rising about 5% per year.

In the four weeks ending September 11, real estate listings fell 19% from a year earlier, the biggest drop since May 2020, real estate brokerage Redfin Corp found.

Many potential buyers are pulling out of the market as higher rates add hundreds of dollars to monthly mortgage payments. On the other hand, many homeowners are hesitant to sell because they’re likely stuck with a much lower rate than they’d get on their next mortgage.

The Fed’s decision on Wednesday raised its benchmark short-term rate, which affects many consumer and business loans, to a range of 3% to 3.25%, the highest level since early 2008.

Fed officials predict they will raise their benchmark rate further to around 4.4% by year-end, one point higher than they had envisioned last June. And they expect to raise the rate again next year, to around 4.6%. It would be the highest level since 2007.

By raising borrowing rates, the Fed is making it more expensive to take out mortgages and car or business loans. Consumers and businesses are likely to borrow and then spend less, which cools the economy and slows inflation.

Mortgage rates do not necessarily reflect Fed rate increases, but tend to follow the yield of the 10-year Treasury note. This is influenced by a variety of factors, including investor expectations for future inflation and global demand for US Treasuries.

Recently, faster inflation and strong economic growth in the United States pushed the 10-year Treasury rate up to 3.65%.

The average rate for 15-year fixed-rate mortgages, popular among those looking to refinance their homes, jumped to 5.44% from 5.21% last week. This is the highest level since 2008. Last year, at this time, the rate for a 15-year mortgage loan was 2.15%.

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