In the past few days, US 30-year mortgage rates have seen a sharp increase, reaching the highest level since November 2000 on Thursday. As a result, the US housing market remains hallenged as elevated mortgage rates continued to impede potential homebuyers.
US 30-Year Mortgage Rates Rose Sharply This Week
According to Bankrate.com‘s data, the 30-Year fixed-rate mortgage reached 7.39% on Thursday, the highest rate since November 2000, but slightly dropped to 7.38% on Friday. This increase was driven by a notable surge in US Treasury yields, which serve as a reference for mortgage rates. The spike in yields was triggered by concerns among bond investors about an influx of government-debt issuance, the strength of the job market, and a downgrade of the sovereign credit rating. Additionally, Japan’s recent tighter monetary policy contributed to this trend. As Japanese long-term yields rose, the largest foreign holders of US Treasuries, Japanese investors, became less interested in US bonds and demanded a premium.
Sources: Bloomberg, Bankrate.com
US Housing Market Falters With Mortgage Purchase Applications Falling
According to the Mortgage Bankers Association, for the week ending July 28, mortgage purchase applications decreased by 3.2% on a seasonally adjusted basis from the previous week. The index dropped for a third straight week, with a total fall of 9.5% over the past five weeks.
Sources: Bloomberg, MBA
The decrease in purchase activity can be attributed to various factors affecting both supply and demand. According to the latest report from Redfin, high mortgage rates have caused many potential sellers to stay in the market, holding onto their homes with relatively low rates. Consequently, the available inventory of homes has sharply decreased, giving homebuyers fewer choices.
Furthermore, the limited inventory has kept home prices at a high level, making it even more challenging for buyers. Adding to this, the soaring mortgage rates have significantly impacted housing affordability since February. In fact, the Redfin report highlights that the typical U.S. homebuyer’s monthly mortgage payment was $2,605 during the four weeks ending July 30, representing a 19% increase compared to the previous year.
The combination of high mortgage rates and constrained housing supply has resulted in a challenging environment for prospective homebuyers, dampening their purchasing power and hindering their ability to enter the market. The rise in mortgage rates observed recently is expected to have a significant effect on closed sales from August to October. This could potentially lead to existing home sales reaching a 13-year low.
Sources: Bloomberg, NAR