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The average interest rate for the most popular US home loan hit its highest mark since 2008, the Mortgage Bankers Association revealed Wednesday.
The 30-year fixed-rate mortgage climbed 27 basis points to 6.52% for the week that ended September 23.
The Fed’s hawkish monetary policy has made homes increasingly unaffordable.
The average interest rate on the most popular US home loan hit its highest mark since 2008 as the Fed’s hawkish policy makes buying a home increasingly unaffordable.
The 30-year fixed-rate mortgage climbed to 6.52% in the week leading up to September 23 from 6.25% in the prior week, data from the Mortgage Bankers Association revealed Wednesday. The effective rate, which accounts for compounding, climbed to a 15-year high of 6.86%.
The higher rate mirrors the surge in the 10-year Treasury yield, which touched 4% for the first time since 2008 on Wednesday, as the Federal Reserve continues tightening monetary policy to bring down inflation.
Fed Chair Jerome Powell has signaled that the central bank won’t stray from its aggressive course of action, and that has weighed on home-buying prospects. At a press conference last week following the Fed’s third consecutive 75-basis-point hike, Powell noted that the housing market will likely face a “correction” after a stretch of “red hot” price increases.
The Mortgage Bankers Association also said Wednesday that its Market Composite Index — a gauge of the number of mortgage loan applications submitted — slipped 3.7% compared to the prior week, hitting the lowest level since 1999.
What’s more, the group’s Refinance Index slumped 10.9% to a 22-year low, and now stands 84% lower than the same time last year. The trend is a reflection of the dwindling number of buyers who can afford to refinance in the current market conditions.
Meanwhile, growth in house prices slowed at the steepest rate on record in July, according to the S&P CoreLogic Case-Shiller index released on Tuesday. The average price of a home in the US increased by 15.8% in July compared to the year prior, a lower mark from the 18.1% annual increase from June.
“Although U.S. housing prices remain substantially above their year-ago levels, July’s report reflects a forceful deceleration,” S&P DJI said in the report. “The -2.3% difference between those two monthly rates of gain is the largest deceleration in the history of the index.”
The cooling housing market has seeped into commodities, as lumber prices have dropped more than 60% so far in 2022. Leading up to Monday, the essential builder’s commodity dropped 20% over a four-day stretch.
For lumber to rebound from a downbeat year, mortgage rates would likely have to fall and spark an uptick in homebuilding activity.