The average rate for a 30-year fixed mortgage topped 7% for the first time in two decades this week.
Freddie Mac reported on Thursday that the average long-term U.S. mortgage rate climbed to 7.08% from 6.94% a week ago. A year ago, the 30-year rate averaged 3.14%.
"The 30-year fixed-rate mortgage broke seven percent for the first time since April 2002, leading to greater stagnation in the housing market," said Sam Khater, Freddie Mac’s chief economist.
The 15-year fixed-rate mortgage averaged 6.36%, up from last week's average of 6.23%. A year ago at this time, the 15-year FRM averaged 2.37%.
Finally, the 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 5.96%, up from last week's 5.71% average. A year ago at this time, the 5-year ARM averaged 2.56%.
"As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month," he continued. "In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward."
The Fed has raised its key benchmark lending rate five times this year in an effort to reduce skyrocketing inflation, including three consecutive 0.75 percentage point increases that have brought its key short-term borrowing rate to a range of 3% to 3.25%, the highest level since 2008. The central bank is expected to raise the benchmark interest rate by another 75 basis points when it meets next week.
Mortgage rates don’t necessarily mirror the Fed’s rate increases, but tend to track the yield on the 10-year Treasury note. That’s influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.
Many potential homebuyers have moved to the sidelines as mortgage rates have more than doubled this year. Sales of existing homes have declined for eight straight months as borrowing costs have become too high a hurdle for many Americans already paying more for food, gas and other necessities. Meanwhile, some homeowners have held off putting their homes on the market because they don’t want to jump into a higher rate on their next mortgage.
The Associated Press contributed to this report