Mortgage rates hit 7.23%, a 22-year high, as borrowing costs soar 18% in a year

Mortgage rates continued to surge this week, rising to their highest level since 2001 as borrowing costs have jumped 18% in a year.

The 30-year fixed-rate mortgage averaged 7.23% in the week ending August 24, up from 7.09% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.55%. This week’s average rate is the highest the 30-year, fixed-rate mortgage has been since June 2001, when it was 7.24%.

Here’s how a payment on a $600,000 mortgage has changed in this rising rate era …

• At the latest 7.23% rate, the monthly payment would be $4,084.
• that’s 12% higher than what would have been paid at 2023’s February low of 6.09%.
• it’s 18% above than a year ago’s 5.55%.
• and it’s 66% higher than January 2021’s all-time low of 2.65%.
• 56% higher than the start of the pandemic era, February 2020, when rates were 3.45%

House hunters are encountering the most-unaffordable market in almost four decades. Borrowing costs that have doubled since early last year are keeping current homeowners from moving and listing their properties for sale. Prices are climbing as buyers determined to seal a deal are left to compete for a supply of choices that Sam Khater, Freddie Mac’s chief economist, called “woefully low.”

Rates have been above 6.5% since the end of May and have been climbing higher since mid-July. Prior to last week’s rate, the last time rates were over 7% was in November of last year when they hit 7.08%. And indications of ongoing economic strength will likely keep mortgage rates where they are or send them higher in the short term, Khater added.

Mortgage rates have spiked during the Federal Reserve’s historic inflation-curbing campaign, sending home affordability to its lowest level in several decades. Buying a home is more expensive because of the added cost of financing the mortgage and rising home prices.

The inventory of existing homes has dramatically declined as homeowners who previously locked in lower rates are reluctant to sell. The combination of low inventory and high costs has squeezed would-be homebuyers and sent overall home sales way down.

The inventory shortage pushed purchases of previously owned homes last month to the slowest pace since the start of 2023, according to the National Association of Realtors. With few listings on the resale market, contracts to buy new homes rose to the highest level in more than a year, government data showed Wednesday. Some of the biggest builders are able to offer better mortgage rates than borrowers otherwise would have access to.

“There are slightly more new homes available, and sales of these new homes continue to rise, helping provide modest relief to the unyielding housing inventory predicament,” Khater said in the statement.

Inflation is cooling, but other recent economic reports have been stronger than expected. That “leaves the door open for a healthy debate about the right move” at the Federal Reserve’s meeting next month, said Danielle Hale, chief economist at Realtor.com.

While policymakers are widely expected to hold interest rates steady this time, “the more open question is whether additional hikes are in store as we near the end of the year,” Hale said.

Bloomberg News, CNN, and Jonathan Lansner of the Southern California News Group contributed to this report.jlansner@scng.com

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Source: Orange County Register