In the past few weeks, US 30-year mortgage rates have seen a sharp increase, reaching the highest level since 2000. As a result, the US housing market remains challenged as elevated mortgage rates continued to impede potential homebuyers while supply keeps falling.
US 30-Year Mortgage Rates Remain High
According to Bankrate.com‘s data, the 30-Year fixed-rate mortgage reached 7.62% on Monday, the highest rate since September 2000, but slightly dropped to 7.61% on Friday.
Meanwhile, Freddie Mac reported the 30-year fixed-rate mortgage averaged 7.23% as of Aug. 24 (up from 7.09% last week), rising for the fifth straight week. A year ago at this time, the 30-year FRM averaged 5.55%. In the meantime, 15-year fixed-rate mortgage averaged 6.55%, up from last week when it averaged 6.46%. A year ago at this time, the 15-year FRM averaged 4.85%.
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 and a lack of international demand.
US Housing Market Falters With Mortgage Purchase Applications Crashing
According to the Mortgage Bankers Association, for the week ending August 18, 2023, mortgage purchase applications decreased by 5.0% on a seasonally adjusted basis from the previous week (v -0.3% prior). The index dropped for a sixth straight week and was down 16.6% over the past eight weeks. It reached the lowest level April 1995 (when the US population was ~70 million lower).
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 impacted housing affordability significantly.
Therefore, according to our external contributor, Christophe Barraud,”this situation is expected to have a significant effect on closed sales from August to October. Contract closings decreased 2.2% in July, from a month earlier to a 4.07 million annualized pace, National Association of Realtors data showed Tuesday. The recent spike of 30-year mortgage rates and the crash of mortgage purchase applications imply that existing home sales will fall further in the coming months, reaching a 13-year low.“