US mortgage rates hit 23-year high

In a significant development that is sending ripples through the American housing market, home loan rates have surged to their highest levels in more than two decades. Approaching 8% this week, the surge comes as a direct consequence of the Federal Reserve’s aggressive campaign to hike interest rates, sparking concerns about the stability of the post-Covid housing market.

According to data revealed by Mortgage News Daily, the average 30-year fixed mortgage rate climbed to 7.49% on Tuesday, marking the first time it has reached such heights since the late 2000s. The impact on the housing market has been swift and pronounced, with home-purchase applications experiencing a sixth consecutive week of decline, plunging to their lowest level since 1995. The Mortgage Bankers Association pointed out that the rising costs have pushed homeownership further out of reach for a significant portion of Americans.

Experts are growing increasingly concerned about the potential consequences of this trend. James Iuorio, Managing Director at TJM Institutional Services, warned, “As time goes on and people have to roll out of those 30-year loans that they have, I think we’re going to see the effects in housing are going to be dire, but it’s going to take longer this time than before,” in an interview with Fox Business.

The surge in mortgage rates is closely tied to the yields on the 10-year US Treasury bond, which are currently hovering around 16-year highs. These yields have a direct influence on mortgage rates and other forms of borrowing, and traders are increasingly anticipating a sustained period of higher rates. This sentiment is not unfounded, as most US officials foresee significant upside risks to inflation, potentially necessitating further rate hikes, according to sources from Bloomberg.

The ripple effects of these rising borrowing costs are reverberating throughout the residential housing market. With mortgage rates remaining elevated, the market is facing additional pressure. Home sales have taken a notable hit, particularly in July, as homeowners locked into lower-interest mortgages have been hesitant to put their properties up for sale. According to data from the National Association of Realtors, sales of previously owned homes dropped by a staggering 16.6% in comparison to July 2022.

It’s worth noting that this surge in home loan rates brings to memory the historical peak in mortgage rates back in 1981 when the annual average stood at an astounding 16.63%. While the current rates are nowhere near that level, they mark a significant departure from the relatively low rates that have been prevalent over the past decade.

As the Federal Reserve’s interest rate policy continues to shape the economic landscape, the housing market’s ability to weather these fluctuations remains a point of concern for both potential homebuyers and industry experts.