The average long-term mortgage rate climbed further above 7% this week to its highest level since 2001, another blow to would-be homebuyers grappling with rising home prices and a stubbornly low supply of properties on the market.
Mortgage buyer Freddie Mac said Thursday that the average rate on the benchmark 30-year home loan climbed to 7.23% from 7.09% last week. A year ago, the rate averaged 5.55%.
It’s the fifth consecutive weekly increase for the average rate, which is now at its highest level since early June 2001, when it averaged 7.24%.
High rates can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford in a market already unaffordable to many Americans. They also discourage homeowners who locked in low rates two years ago from selling.
Mortgage rates have been rising along with the 10-year Treasury yield, used by lenders to price rates on mortgages and other loans. The yield has been climbing as bond traders react to more reports showing the US economy remains remarkably resilient, which could keep upward pressure on inflation, giving the Federal Reserve reason to keep interest rates higher for longer.
“This week, the 30-year fixed-rate mortgage reached its highest level since 2001 and indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short-term,” said Sam Khater, Freddie Mac’s chief economist.
High inflation drove the Federal Reserve to raise its benchmark interest rate 11 times since March 2022, lifting the fed funds rate to the highest level in 22 years.
Mortgage rates don’t necessarily mirror the Fed’s rate increases, but tend to track the yield on the 10-year Treasury note. Investors’ expectations for future inflation, global demand for US Treasurys and what the Fed does with interest rates can influence rates on home loans.
The average rate on a 30-year mortgage remains more than double what it was two years ago, when it was just 2.87%. Those ultra-low rates spurred a wave of home sales and refinancing. The sharply higher rates now are contributing to a dearth of available homes, as homeowners who locked in those lower borrowing costs two years ago are now reluctant to sell and jump into a higher rate on a new property. It’s a key reason new home listings were down nearly 21% nationally in July from a year earlier, according to Realtor.com.
The lack of housing supply is also weighing on sales of previously occupied US homes, which are down 22.3% through the first seven months of the year versus the same stretch in 2022.
The average rate on 15-year fixed-rate mortgages, popular with those refinancing their homes, rose to 6.55% from 6.46% last week. A year ago, it averaged 4.85%, Freddie Mac said.