Mortgage rates hit 8% on this week, the highest level since August 2000 and deepening an affordability crisis for homebuyers.
The average rate for a 30-year loan touched 8% on Wednesday, according to Mortgage News Daily, which surveys a range of lenders to determine current home loan rates.
Higher borrowing costs and elevated residential real estate prices have made home buying unaffordable for a larger swath of buyers, economists and researchers say. In about a dozen U.S. states, families with a median income for their area cannot afford a mortgage, according to recent research from Moody's. That's up from only two states in 2019.
The national median home price was $430,000 last month, up from $400,000 in January, according to Realtor.com.
"The 23-year high in mortgage rates also goes a long way towards explaining why sellers have withdrawn from the market," Thomas Ryan, a property economist with Capital Economics, said in a research note Wednesday. "The increase in mortgage costs homeowners would incur by getting a new mortgage to move has stopped many from attempting to move altogether and led listings of new homes for sale to drop by a third."
Other groups tracking home loans peg rates on a typical 30-year mortgage at slightly below 8%. The Mortgage Bankers Association (MBA) said on Wednesday put it at 7.7% this week, while Freddie Mac pegged the average rate at 7.63% as of Thursday. Mortgage rates were around 6.94% this time last year, according to Freddie Mac.
"In this environment, it's important that borrowers shop around with multiple lenders for the best mortgage rate," Sam Khater, Freddie Mac's chief economist said. "With research showing down payment is the single largest barrier to first-time homebuyers attaining homeownership, borrowers should also ask their lender about down payment assistance."
Impact on home sales
Even high-income earners in cities like Boston, Miami, Phoenix, Salt Lake City and Seattle cannot afford a mortgage under the median home prices in those areas, a LendingTree report released Tuesday found.
"Ultimately, until mortgage rates and home prices both start to show more significant and sustained declines, affordability challenges are likely to persist for high and low income earners alike," LendingTree Senior Economist Jacob Channel said in the report.
Higher mortgage rates have contributed to the decline in mortgage applications and home sales, according to data from the MBA and the National Association of Realtors (NAR). Existing home sales fell 2% in September, NAR said on Thursday. Sales have dipped because there's limited housing inventory and what's on the market is mostly unaffordable, said NAR Chief Economist Lawrence Yun.
Mortgage rates have jumped this year partly because the Federal Reserve raised its benchmark rate several times in an attempt to cool inflation.
A group of housing associations this month urged Fed Reserve officials to hold off on additional rate hikes and to take other actions that would help lower mortgage rates. The Community Home Lenders of America, National Association of Realtors and Independent Community Bankers of America also sent a letter to U.S. Department of Treasury Secretary Janet Yellen this month asking for relief.
Rising mortgage rates have made "a significant negative effect on the ability of a family to qualify for and purchase a home, particularly for first-time homebuyers," the groups said in a letter to Yellen.
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