Mortgage Rates Top 6% for the First Time Since the 2008 Financial Crisis
September 14, 2022
Mortgage rates broke above 6% this week, reaching their highest level since 2008, straining affordability for buyers and raising alarm bells about a slowdown in the housing market.
The average rate on a 30-year fixed mortgage climbed to 6.02% this week, more than double the 2.86% rate homebuyers saw a year ago, according to mortgage giant Freddie Mac. The last time rates were this high was 14 years ago, when the U.S. was deep in recession.
Rates had been falling in July and early August as recession fears took hold, but comments from Federal Reserve Chairman Jerome Powell and recent economic data have pulled investors’ attention back to the central bank’s fight against inflation, pushing rates higher.
With mortgage rates twice as high as they were a year ago, applications for home loans have dropped and applications to refinance into a lower payment have plummeted, down 83% from a year ago, according to the Mortgage Bankers Association.
A year ago, a buyer who put 20% down on a median-priced $390,000 home and had a 30-year, fixed-rate mortgage at an interest rate of 2.86% would have a monthly mortgage payment of $1,292, according to calculations from Freddie Mac. At today’s rates, the same home purchase would result in a monthly mortgage payment of $1,875, a difference of $583 more each month.
Home prices continue to show large gains from a year ago, and as of July the median sales price for an existing home still tops $400,000, but existing-home sales have fallen for the last six consecutive months and the pace of price growth has decelerated.
Signs point to a further slowdown in prices ahead. In the past four, homes on average sold for 0.5% below their final list price, according to Redfin, a real-estate brokerage. That compares with 1.1% of homes that sold above their listing price a year earlier. The firm also said that home-touring activity is down 14% from the beginning of the year.