Strong economic data has caused mortgage rates to soar this week, reaching their highest level since 2001. Unfortunately, this surge in rates is hindering many potential home buyers from entering the market.
According to Freddie Mac, the average 30-year fixed-rate mortgage has risen by 0.14 percentage point to 7.23% this week. This marks the highest level since June 2001, as per historical data.
For individuals hoping for lower financing costs, this news brings more disappointment. The increase in rates is the steepest week-over-week jump since mid-July, with rates rising consistently for five consecutive weeks.
Unfortunately, the near future doesn’t hold much promise for improvement. According to Sam Khater, Freddie Mac’s chief economist, “Indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short-term.”
The 10-year Treasury yield, which often influences mortgage rates, saw a slight uptick to 4.217% late Thursday morning. Earlier this week, the yield reached 4.339%, marking its highest level since November 2007 based on a Dow Jones Market Data analysis of 3 p.m. yields.
Higher Mortgage Rates Impact Housing Market
The housing market has experienced a significant impact due to higher mortgage rates. While sales of newly-built homes have shown some signs of improvement, existing-home sales have declined. Recent data reveals a continued decline in purchase loan applications, reaching their lowest level since 1995. Prospective buyers have faced numerous challenges this summer, including high home prices, low housing supply, and the burden of high mortgage rates, resulting in decreased purchasing power.
Fewer Existing-Home Listings
One notable trend in the housing market in 2023 is the contrast between previously owned homes and new homes. High mortgage rates have played a crucial role in causing homeowners to remain in their current properties, leading to a shortage of existing-home listings.
Affordability Challenges for Buyers
Limited supply and higher mortgage rates have created significant barriers for individuals looking to afford a home, especially first-time buyers. With the supply remaining low, there has been a surge in new home sales compared to the previous year. This suggests that buyers are exploring alternative options, seeking potential incentives or discounts provided by builders.
A Modest Relief
Despite the challenges posed by high rates and limited supply, there is a slight indication of relief regarding new homes. A slightly higher number of new homes are available for purchase, and sales in this segment continue to rise. Although it is not a complete solution, it offers some relief to the ongoing housing inventory predicament.
Overall, the housing market has faced substantial hurdles due to high mortgage rates. As existing-home sales continue to decline, new home sales provide a glimmer of hope for those seeking opportunities amidst the prevailing challenges.
The Imbalance in the New Homes Market
The imbalance may have helped business at home builders this year—but the new homes market might not be impervious to rates that are once again above 7%.
Weakening New Home Sales
According to Robert Dietz, the National Association of Home Builders’ chief economist, new home sales are expected to weaken in August. This is primarily due to higher interest rates that are pricing out prospective buyers.
It is important for home builders to be aware of this potential slowdown and take appropriate measures to adapt to the changing market conditions.