The national average interest rate on a 30-year, fixed-rate mortgage moved up to 5.89 percent last week, almost double the rate a year ago and the highest in 14 years, dealing another blow to an already weakening housing market.
Home prices in most major U.S. housing markets have fallen, with 10 percent of the areas seeing a decline of at least 4 percent. (See “Real Estate Prices Falling in Major U.S. Metro Areas” in this issue.)
Mortgage rates will continue to rise, The Wall Street Journal noted, because the U.S. Federal Reserve has pledged to continue raising interest rates through the rest of this year.
Mortgage rates are tied to yields on the 10-year treasury note, which rises as the Fed raises its rate.
Higher mortgage interest rates can add hundreds of dollars to a monthly house payment now that the U.S. median home price has exceeded $400,000.
Mortgage firms did booming business while the Fed held interest rates near zero during the COVID War. Now that interest rates are on the move, many mortgage lenders have laid off staff; some have closed offices.
TREND FORECAST: The U.S. economy is rolling toward a recession, which will weaken the jobs market.
An uncertain employment outlook coupled to higher interest rates will spur lenders to hold to their tight lending standards, or tighten them even more.
At the same time, inflation and high demand have combined to push home prices to their highest on record. Prices will fall, but not enough to crack open the market to less well-off potential buyers.
As a result, fewer households will be able to buy a home, particularly among lower- and middle-income earners.
We have noted in articles such as “Home Prices Set Yet Another Record While Sales Fall” (26 Apr 2022), as well as many others, that millions of potential home buyers will have an increasingly difficult time saving cash for a down payment on a house and an equally difficult time qualifying for an affordable mortgage.
At least one generation of Americans will spend their lives as renters, denied the satisfaction—and potential financial rewards—of owning a home of their own.
Also, as we predicted in “Apartment Investors Pressured By Rising Interest Rates” (31 May 2022), the high price of houses, and now record-high apartment rents, will continue to be a key factor thinning out the middle class, reducing the U.S. to a society of a well-heeled minority and a majority that struggle harder and harder to survive.