Mortgage Rates Soar to Highest Level Since Mid-July
The US housing market is facing a new reality as the average rate on a 30-year mortgage surges to its highest level since mid-July. According to mortgage buyer Freddie Mac, the rate jumped to 6.85% from 6.72% last week, marking the second consecutive weekly increase.
A Shift in the Market
This significant rise is attributed to the recent spike in bond yields, which lenders use as a benchmark to price home loans. In fact, the average rate on a 30-year mortgage is now higher than it was a year ago, when it averaged 6.61%. The rate had dipped as low as 6.08% in September, a 2-year low, but has been steadily increasing since then.
Economists Weigh In
Most economists predict that the average rate on a 30-year mortgage will remain above 6% next year, with some forecasting an upper range as high as 6.8%. This range is largely in line with where rates have hovered this year. The elevated mortgage rates, combined with rising home prices, have made homeownership unaffordable for many would-be buyers.
The Impact on Homeowners
Borrowing costs on 15-year fixed-rate mortgages, popular among homeowners seeking to refinance their home loan at a lower rate, also rose this week. The average rate increased to 6% from 5.92% last week. A year ago, it averaged 5.93%, according to Freddie Mac.
A Sluggish Housing Market
Despite a slight increase in sales of previously occupied US homes in November, the housing market remains in a slump and is on track for its worst year since 1995. Mortgage rates are influenced by several factors, including the moves in the yield on US 10-year Treasury bonds.
The Role of the Federal Reserve
The Federal Reserve’s actions and the trajectory of inflation have a significant impact on the 10-year Treasury yield, which in turn affects mortgage rates. The central bank’s decision to signal fewer cuts to rates next year than previously forecast has led to a rise in bond yields.
The Wildcard: Inflation and National Debt
The biggest uncertainty for mortgage rates next year is the potential impact of President-elect Donald Trump’s policy initiatives on inflation and the national debt. If these initiatives contribute to higher inflation and a swelling national debt, it could keep mortgage rates elevated. The outcome will depend on how the economy responds to these changes.
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