For the most popular U.S home loan (conventional fixed rate mortgage), the average interest rate has risen above 6%. This is the first time this has happened since 2008 and is now two times more than the level it was at just 12 months ago. These numbers were provided by the Mortgage Bankers Association, (MBA) and paint a very telling picture.
Fragile Housing Sector
These mortgage rates that continue to rise are continuously putting more weight on the housing sector which is already extremely sensitive to increasing interest rates. However, the Federal Reserve continues to fiercely raise borrowing costs to combat the extremely high inflation the economy is facing. The Benchmark overnight lending rate of the Central Bank has raised 225 points in the last 6 months.
Home Sales Plunge
These high-interest rates are greatly impacting the sale of homes across the entire housing sector. In July, new home sales plummeted to a 6-and-a-half-year low, while home resales and single-family housing are both at two-year lows. However, due to a critical affordable home shortage, housing prices are unsurprisingly remaining elevated and expensive. This fortunately makes a collapse of the housing market unlikely, although it will still be looming.
Interest Rate Hikes
Last week, the key inflation report was released and was worse than expected. This means that the Federal Reserve will most likely deliver a third consecutive Interest Rate Hike of 75-Basis Points. This is predicted to be announced at the FED’s policy meeting that will be held later this week. This has investors extremely nervous as they assume that the interest rate hike will cause the central bank to hike rates higher and faster than ever seen before.
Rising Rates
On a 30-year fixed-rate mortgage, the percentage rose by 7 basis points to 6.01% as of two weeks ago. This level has not been seen since the end of the financial crisis and the great recession. According to the Mortgage Banking Association, its Market Composite Index, which is a measure of mortgage loan application volume, has declined by almost 1.5% in just a week. Since last year, that volume has fallen 64%. The MBA’s Refinance Index has also been plummeting, as it has fallen 4.2% in a week and fallen 83% in just one year
Wrap-Up
This type of news is never good for any American, particularly Americans that are looking to buy or sell a home. As high inflation and rising interest rates continue to impact people’s mortgages, give your accountant or advisor a call to see how they can help you and give advice on whether refinancing your mortgage is the right decision.