Rates for the 30-year mortgage passed the 6% mark for the first time in 14 years last week as worse-than-anticipated inflation indicators hit the market, Freddie Mac said.
The average rate for a 30-year fixed-rate mortgage increased to 6.02% for the week ending Sept. 15, according to Freddie Mac's Primary Mortgage Market Survey. This is an increase from the week before when it averaged 5.89% and is significantly higher than this time last year when it was 2.87%.
Other loan terms also increased this week. The 15-year mortgage rose to 5.21%, up from 5.16% the week before and up from 2.18% last year. The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) also increased to 4.93%, up from 4.64% the week before and up from 2.43% last year.
"Mortgage rates continued to rise alongside hotter-than-expected inflation numbers this week, exceeding six percent for the first time since late 2008," Sam Khater, Freddie Mac's chief economist, said. "Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate. This indicates that while home price declines will likely continue, they should not be large."
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Rates climb in reaction to high inflation
August's inflation figures showed that consumers are still dealing with high prices despite efforts by the Fed to drive inflation down.
The Consumer Price Index (CPI), a measure of inflation, increased 8.3% annually in August, according to the Bureau of Labor Statistics. This was down from 8.5% in July and a four-decade high of 9.1% in June.
"While the headline figure slowed from June's high, core inflation remains stubbornly elevated, putting pressure on the Federal Reserve to maintain an aggressive stance on monetary tightening," George Raitu, manager of economic research at Realtor.com, said.
The Federal Reserve has been raising interest rates to curb high inflation. It approved back-to-back 75 basis point interest rate hikes in June and July. The expectation is that it will raise rates again during its September meeting by as much as 75 basis points or even 100 basis points, Raitu said.
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Sellers cut home prices to draw in buyers
The higher borrowing rates mean that someone buying a median-priced home would currently face a monthly payment of $2,100, a 66% jump from last year, according to Realtor.com.
"With real median household incomes remaining relatively unchanged, many first-time homebuyers are finding the door to homeownership is closed for this season," Raitu said. "With borrowing costs expected to continue rising in the next few months, it is becoming increasingly clear that home prices need to decline to bring balance back to housing markets."
Raitu said that many sellers have responded to this shift in market conditions by cutting their asking prices. Experts are anticipating a cool down in home prices, kickstarting a market that is more balanced towards buyers.
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