The US 30-year mortgage rate rose to 7.16% last week, matching the highest since 2001 and crimping both sales and refinancing activity.
The contract rate on a 30-year fixed mortgage rose 7 basis points to 7.16% in the week ended Aug. 11, according to Mortgage Bankers Association data out Wednesday. The gauge of home-purchase applications slipped for a fifth-straight week to the second-lowest level since 1995.
The latest jump in borrowing costs presents a fresh headwind for the housing market, just as the sector had been showing signs of finding its footing. The impact from high mortgage rates is two-fold: it restrains demand and keeps many Americans who are sitting on lower mortgage rates from listing their homes.
A lack of homes listed for sale are also pushing prices higher, with recent price gains helping the US housing market erase the roughly $3 trillion it lost in value during the past year’s slowdown, according to Redfin Corp. Price gains coupled with higher rates are squeezing affordability even more.
“Many households that would like to move are trapped right now,” said James Knightley, ING’s chief international economist. “Consequently housing supply has fallen just as rapidly as housing demand, hence why prices have stabilized and are moving higher again in several areas.”
Read more: US Housing Market Recoups $3 Trillion Lost in Recent Slowdown
Higher rates could exacerbate inventory issues as owners seeking to move confront the prospect of giving up much lower rates. About nine in 10 owners with mortgages have interest rates under 6%, according to Redfin.
The Federal Reserve’s efforts to tame inflation through higher interest rates led to a rapid deterioration in the sector last year, dragging down economic growth. Existing-home sales have remained tepid amid limited supply, but new-home sales have rebounded, supported by more available inventory.
The pickup in the housing market has fueled more optimism among economists that the US may be able to avoid recession. Another report Wednesday showed new-home building rose last month, and applications to build single-family homes advanced to the highest in more than a year.
But separate data on Tuesday showed homebuilder sentiment fell for the first time this year on concerns about higher borrowing costs. While lean inventory has generally encouraged more home construction, higher mortgage rates may mean builders have to offer more incentives to lure prospective buyers.
Mortgage News Daily, which updates more frequently, put the 30-year rate at 7.26% on Tuesday.
The MBA’s gauge of refinancing applications fell 1.9%, a fourth-straight decline. The overall measure of mortgage applications fell 0.8%.
The survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US.
--With assistance from Katherine Chiglinsky.
(Adds economist’s comment)
