|
|
In the week ending 15 September, the average national interest rate on a fixed-rate, 30-year home mortgage was 6.02 percent, according to the Federal Home Loan Mortgage Corporation (Freddie Mac).
The rate rose from 5.89 percent the previous week and is more than double the 2.86 percent average a year ago. Rates began this year at 3.22 percent.
The last time mortgage rates were this high was in 2008.
U.S. mortgage rates have not increased this fast in more than 50 years, the Financial Times noted.
A year ago, a buyer who paid $20,000 down on a $390,000 home and took out a fixed-rate, 30-year mortgage at 2.86 percent to cover the rest made monthly payments of $1,292, according to Freddie Mac.
Today, the same purchase at 6.02 percent would result in an $1,875 monthly payment, $583 more.
“Although the increase in rates will continue to damp demand and put downward pressure on home prices, inventory remains inadequate,” meaning there are not enough homes for sale to meet demand, Sam Khater, Freddie Mac’s chief economist, said in comments quoted by the FT.
As a result, despite rising interest rates, the S&P CoreLogic Case-Schiller U.S. home price index edged up 0.8 percent in June, the index’s most recent reading.
The pace at which prices are rising has slowed considerably this year as higher mortgage rates “have started to spook potential buyers,” the FT reported.
“Consumer sentiment has declined [to] levels not seen in more than a decade,” Julie Booth, chief financial officer at Rocket Co., the country’s largest mortgage originator, said to the FT.
As a result, “potential home buyers are staying on the sidelines,” she added.
Sales of existing homes in July fell 5.9 percent below June’s and 20 percent below a year previous, the National Association of Realtors reported.
For the week ending 9 September, the number of new mortgage applications was 1.2 percent fewer than the week before. Applications for refinancing were 80 percent below those a year earlier.
Although the median home price was 10.8 percent higher than a year earlier, at $403,800 it was still $10,000 less than June’s record high.
Mortgage rates tend to reflect changes in the yield on the 10-year treasury bond. The yield rose last week in anticipation of the U.S. Federal Reserve raising interest rates again this week, George Ratiu, Realtor.com’s chief of economic research, told CNN.
“With real median household incomes remaining relatively unchanged, many first-time home buyers are finding the door to home ownership is closed for this season,” he added.
“Many sellers are responding by cutting their asking prices,” Ratiu noted. “These changes are coinciding with the time of year when buyers have historically found the best market conditions to find a bargain.”
TREND FORECAST: Today’s U.S. housing market is an exemplar of our Top 2022 Trend of Dragflation, a time when prices are rising during a shrinking economy.
For more than a year, we have been forecasting that the housing market would crack when the U.S. Federal Reserve raised its key interest rate to or beyond 1.5 percent.
That has proven true.
Vast numbers of modest- and middle-income buyers are now shut out of the market by high interest rates, shrinking savings (see “U.S. Bank Deposits Fall By Most in Four Years” in this issue), and concerns over a possible recession.
The median home sale price remains high because only well-off households can afford the hefty down payments and high monthly outlays to service a mortgage, meaning that high-priced houses are most of those that are selling.
TREND FORECAST: The U.S. median household income as of July was $78,532, according to SeekingAlpha.com. As we have shown in articles such as “Middle-Income Buyers Too Poor To Buy Homes” (15 Feb 2022), people making the current U.S. median income are not making enough money to be able to buy half the homes on the market.
We have noted repeatedly that Millennials and late-born Generation X’ers are coming into the ages at which people usually buy homes.
However, today’s real estate market will consign at least one generation of Americans to live their lives as renters, being denied the satisfaction of owning a home and of building savings over time as they earn equity in the property.
TRENDPOST: As Arthur Beckerman of AMB Realty in Florida notes, “Assume a mortgage today on a house of $450,000: 6.4%/30 year fixed rate=$2815/month. One year ago a 3% /30 year fixed rate=$1897 per month. That’s an increase of $918/month or $11,016 more per year.”
And this is before the Fed bumps up rates by at least 75 basis points tomorrow, and another hike next month.
Sales of housing are already down and going lower and prices are already down and going lower, he noted.