US mortgage rates hit new heights as economy defies expectations

The 30-year fixed-rate mortgage reaches its highest level in 22 years

US mortgage rates hit new heights as economy defies expectations

The 30-year mortgage rate surged to its highest levels in 22 years as stronger-than-expected economic growth continued to push rates higher, according to Freddie Mac.

The average 30-year fixed-rate loan rose for the third straight week, hitting a new record high of 7.23% as of August 24. That’s up 14 basis points from the previous week and above the 5.55% average a year ago.

“This week, the 30-year fixed-rate mortgage reached its highest level since 2001, and indications of ongoing economic strength will likely continue to keep upward pressure on rates in the short-term,” Freddie Mac chief economist Sam Khater said in a news release.

The 15-year fixed-rate mortgage increased nine basis points week over week to 6.55%. This time last year, the 15-year rate was 4.85%.

The impact of inflation has reverberated beyond interest rates. With mortgage rates now sitting well above 7%, applications for home purchase mortgages fell to a 28-year low, and existing home sales cooled to a 4.07 million pace in July amid unfavorable market conditions.

“As rates remain high and supply of unsold homes woefully low, incoming data shows that existing homes sales continue to fall,” Khater said.

However, Khater noted there are slightly more new homes available, and sales of these new homes continue to rise, “helping provide modest relief to the unyielding housing inventory predicament.”

The Census Bureau reported Wednesday that new home sales were at a seasonally adjusted annual pace of 714,000 in July – up 4.4% from the revised June 2023 estimate of 684,000 units.

Read more: Housing shortage fuels new home sales in July

“Despite high mortgage rates and elevated pricing, new home sales have less competition from resales, allowing them to outperform due to the scarcity of available housing,” explained Kelly Mangold, principal at RCLCO Real Estate Consulting. “Motivated buyers continue to seek homes with space for home offices, growing families, and outdoor space – and as the summer draws to a close, many have found what they are looking for in the new home market.”

Builder incentives are also boosting new home sales, according to First American deputy chief economist Odeta Kushi.

“A builder will do what’s necessary to sell their inventory, including offer incentives,” she said. “Those incentives can come in the form of mortgage rate buy-downs, paying points for buyers and offering price reductions. They can also offer upgrades on appliances and other interior quality features.”

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