Highest mortgage rates in three years chill US housing market

[NEW YORK] Mortgage rates are surging while home prices are climbing, an unwelcome combination that is dashing hopes for many Americans hoping to buy a home.

On Thursday (Oct 8), mortgage finance giant Freddie Mac reported that the average 30-year fixed-rate mortgage had risen to 7.4 per cent, up from 7.28 per cent last week and the highest since November 2023. Last year at this time, the rate was 6.3 per cent.

Mortgage rates had dipped below 6 per cent in February, just before the start of the war in Iran, raising optimism that the housing market was becoming more affordable, said Kara Ng, a senior economist at Zillow, the real estate marketplace. “Now that we’re at 7 per cent, that is a very far distance to push to improve affordability,” she added.

“The difference between beating a dead horse and performing CPR is a perceived probability of success.”

High home prices are compressing the market further. After skyrocketing during the pandemic, when ultralow rates led to bidding wars, prices have continued to climb moderately. Home prices rose 2.6 per cent nationwide in July from the year before, according to the Federal Housing Finance Agency.

Rising prices combined with soaring rates have slowed the market to a crawl. Sales of existing homes dropped 1.2 per cent in August from the year before, according to the National Association of Realtors.

The prognosis for the rest of the year does not look much better: Economists at Zillow are projecting a 3.5 per cent year-over-year decline in the fourth quarter.

“Housing is still rather unaffordable for a large chunk of the population,” said Nancy Vanden Houten, the lead US economist at Oxford Economics, who estimates that 2.5 million to three million people have been priced out of the market.

Investors are worried that higher energy prices caused by the war in Iran, as well as mounting debt from tech giants borrowing to build their artificial intelligence infrastructure, will push inflation higher.

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US mortgage rate rises to 7.28%, highest since November 2023

The yield on the 10-year Treasury note, which is linked to many business and consumer loans, including mortgages, ticked up to 5.36 per cent on Thursday, the highest since 2002.

First-time buyers are being pushed to the sidelines. The people who can most afford to buy a home are the ones who already own one. But faced with the prospect of higher mortgage rates when they move, sellers are puling back, too. New listings of homes for sale fell 3.9 per cent in September from the month before, according to Zillow. NYTIMES