Mortgage rates jumped to the highest levels in more than sixteen years last week, data from an industry group indicated Wednesday, as borrowing costs edged towards the 7% mark amid the Federal Reserve's ongoing effort to cool what it called a 'red hot' U.S. housing market.
The Mortgage Bankers Association said 30-year fixed rates for conforming loan balances of less than $647,200 rose 6 basis point to 6.81% for the week ending on October 7, a move that takes that headline rate to the highest level since May of 2006.
The MBA's seasonally-adjusted Purchase Index, which tracks mortgage applications for the purchase of a single-family home, fell 2.1% as buyers backed away from new transactions amid the surge in borrowing costs, while new applications were down 2% for the week and just under 40% for the year. The MBA also said its refinancing index fell 1.8%.
“Application volumes for both refinancing and home purchases declined and continue to fall further behind last year’s record levels," said the MBA's senior vice president and chief economist Mike Fratantoni. "The news that job growth and wage growth continued in September is positive for the housing market, as higher incomes support housing demand."
"However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes," he added.
The combination of rising interest rates, elevated construction costs and ongoing supply chain disruptions have hammered home building demand, with permits for new construction in August falling to the lowest levels since the early stages of the Covid pandemic in the spring of 2020.
The National Association of Realtors reported that August sales were down for a seventh consecutive month.
The NAHB's index of builder sentiment, meanwhile, fell to 46 points in September, well below the 50 mark that generally signals growth and extending a decline of nine consecutive months for the benchmark survey, the longest losing streak since 1985.
In some respects, though, this is exactly what the Fed has been hoping for in terms of cooling down what Chairman Jerome Powell described as a "red hot" housing market following the central bank's last rate hike in September.
"There was a big imbalance between supply and demand and housing prices were going up at an unsustainably fast level," Powell told reporters in Washington on September 21. "So the deceleration in housing prices that we're seeing should help bring sort of prices more closely in line with rents and other housing market fundamentals and that's a good thing."
