Mortgage interest rates in the United States have surged to their highest levels since 2002, causing concerns for potential homebuyers.
The average interest rate on a 30-year fixed-rate home loan has risen to 7.09% this week, a stark contrast to the rates of the past few years. This significant increase has been attributed to the Federal Reserve’s vigorous efforts to curb inflation by raising interest rates.
Over the past two years, mortgage interest rates have more than doubled, significantly driving up the cost of typical home loans. The surge in rates is impacting the affordability of homeownership, particularly for those who lack substantial down payments. The situation is particularly challenging for first-time buyers who find themselves priced out of the market, with the financial support of “the bank of mum and dad” becoming crucial.
However, the repercussions extend beyond just potential buyers. Existing homeowners looking to upgrade or relocate are being discouraged from doing so due to the higher mortgage interest rates. Many are reluctant to put their homes up for sale, as it would involve taking on a more expensive mortgage. Consequently, the supply of resale homes has been halved, resulting in a sluggish pace of home sales.
The National Association of Realtors’ chief economist, Lawrence Yun, emphasised the impact of these rising rates on the housing market. Yun said that there is a notable shortage of homes available for sale, leading to a significant drop in home sales compared to the previous year.
The surge in mortgage rates is closely connected to the 10-year Treasury yield, which has also experienced an upward trend. The rise is attributed to expectations that the Federal Reserve will continue to maintain higher interest rates in an attempt to rein in inflation. The recent increase in the 10-year yield to 4.3% further underscores the gravity of the situation.
As mortgage interest rates continue to climb, potential buyers and homeowners alike are grappling with the challenges posed by this new financial landscape. Experts suggest that these developments will have a lasting impact on the housing market and the affordability of homeownership in the US.
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