House hunters may be in for sticker shock when it's time to get a home loan: The interest rate on a typical mortgage is now at its highest level since 2000.
The Mortgage Bankers Association (MBA) said Wednesday that the average rate on a conventional 30-year fixed-rate mortgage jumped to 7.31% last week, up from 7.16% the previous week.
Rates slid to well below 3% in 2020 as the housing market ground to a halt because of the pandemic, but began rising sharply the following year as the Federal Reserve launched its ongoing campaign to quash inflation.
The spike in borrowing costs has driven many aspiring homebuyers out of the market: Mortgage applications are at a 28-year-low, according to the MBA.
"Higher interest rates are continuing to impact homebuyers as their purchasing power has been greatly diminished by the doubling in mortgage rates over the past year and a half," Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, said in an email.
A recent survey from Bankrate found that a third of respondents in the market to buy a home say high mortgage rates are holding them back.
Many economists expect the Fed to continue tightening monetary policy, potentially pushing mortgage costs even higher. The central bank in July raised its benchmark rate a quarter of a percentage point to between 5.25% and 5.5%, the.
In announcing the move, Fed Chair Jerome Powell hinted at the possibility of additional hikes, saying that "policy has not been restrictive enough for long enough" to bring inflation in line with the bank's 2% target. Bank of America analysts expect another quarter-point hike when policymakers meet in September.
Mortgage rates don't necessarily mirror the Fed's rate increases, buton the 10-year U.S. Treasury note. Investors' expectations for future inflation, global demand for Treasurys and Fed policy can influence rates on home loans.
Although property buyers are largely at the mercy of lenders when it comes to securing a mortgage, certain steps can help ensure. That means improving your credit score before applying for a loan, including by paying down debt, refraining from taking out new credit, staying on top of your bills, and checking your credit report for any errors or inaccuracies.
Experts also advise against passing on a competitively priced mortgage in hopes that rates will fall back to earth or otherwise trying to time the market. Despite the dizzying rise in borrowing costs, mortgage rates have soared far higher in the past, approaching 20% in the early 1980s as the Fed pulled out the stops to lower spiraling inflation.
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