Borrowing costs for mortgages have hit a 16-year high, with interest on a 30-year conventional mortgage hitting 6.7% on Wednesday, according to Freddie Mac.
Mortgage rates have now more than doubled since the start of 2022. As measured by the ‘effective’ rate, which factors in the upgrade period for a loan and thus offers a truer picture of costs for homebuyers, interest rates of mortgages is now just over 7%, according to Oxford Economics.
A percentage point increase in mortgage rate can add up hundreds of dollars in the monthly payments of a property, depending on the size of the loan. These sharply higher costs freeze the housing market. The number of mortgage applications fell about 14% in the last week of September, according to the Mortgage Bankers Association.
According to NerdWallet, borrowing $300,000 at 6% interest on a standard mortgage will add up to $1,800 a month, including principal and interest. Earlier this year, when interest rates were hovering around 3.5%, the same loan would come to a monthly payment of $1,350.
US house hunters have been hit with a one-two punch this year in high mortgage rates and still high home prices. The rising cost of home ownership deters many would-be buyers, who instead choose to continue renting.
“It is starting to look like home sales will crash to the point where the only people buying homes are those who have no other choice, for reasons of family or work relocation,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a report.
Some relief for buyers may be on the horizon as home prices begin to fall and are likely to continue falling in some real estate markets, economists predict. Home prices in Sacramento, CA. Salt Lake City, Utah; and Seattle, Washington, are seeing some of the steepest declines.
Economists expect mortgage costs to remain high as the Federal Reserve continues to raise its benchmark interest rate in an effort to reduce inflation, including two more hikes by the end of the year.