Mortgage rates climb for 7th week to 7.79% – highest since October 2000

Mortgage rates continued to climb this week amid a stronger-than-expected economy.

The 30-year fixed-rate mortgage averaged 7.79% in the week ending October 26, up from 7.63% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 7.08%. The last time rates were higher was October 2000.

“For the seventh week in a row, mortgage rates continued to climb toward eight percent, resulting in the longest consecutive rise since the Spring of 2022,” said Sam Khater, Freddie Mac’s chief economist. “Purchase activity has slowed to a virtual standstill, affordability remains a significant hurdle for many and the only way to address it is lower rates and greater inventory,” he said.

Look at the impact on a California house hunter. Statewide, there’s been a 26% payment hike in 2023 – this week’s $4,852 on the $843,340 September median sales price for a single-family existing home at 7.79% vs. $3,861 on the $774,850 December 2022 median at 6.36%.

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Upward pressure on rates will grow following surprising strength in gross domestic product, a brad measure of business output. Real GDP grew at a 4.9% annualized rate in the third quarter vs. 2.1% pace in teh previous three months.

“Today’s GDP report shows the nation’s economy is again defying the odds by growing at a rate that is much higher than expected,” said Selma Hepp, CoreLogic’s chief economist, “There are pros and cons to the report. The good news is that Federal interest rate policy is slowing inflation while also keeping unemployment numbers low and consumer spending strong. On the flip side, new homebuyers will face higher mortgage payments for the foreseeable future. Furthermore, many of the only homes available to purchase are newly built, as current homeowners are staying put, with new home purchases up 12% year over year. Yet, surging mortgage rates as well as tighter financial conditions will start weighing on the economy and new home sales and will depress economic growth in the coming quarters with GDP in Q1 2024 expected at less than 2%.”

The high rates are limiting applications for new mortgages. Wednesday the MBA reported that applications for new loans dipped to the slowest weekly pace since 1995. Meanwhile, the share of applications for adjustable rate mortgages rose to 9.5%, the higher since November.

The soaring cost of borrowing money for a home has skewed the U.S. housing market.

Millions of people who locked in mortgages at this time two years ago at 3% or below cannot afford to, or refuse to move, due to the comparative cost of financing a home today.

Last week, the National Association of Realtors reported that sales of existing homes not only fell for the fourth consecutive month, but the pace of sales has ground to the slowest pace in more than a decade.

At the same time the pace of new home sales continue to astound economists for the opposite reason.

New home sales in last month jumped to 759,000, about 79,000 more than had been expected with prospective buyer flooding the only market where homes are available – those that were just built.

“Homebuilders are offering buyers interest rate buydown incentives that funnel demand into the newly-built segment,” said Bill Adams, chief economist at Comerica. “They are also shrinking floorplans to boost affordability.”

Adams says home builders are the “surprise winner” of attempts by the Federal Reserve to cool inflation through interest rate hikes.

Mortgage rates have been climbing along with the 10-year Treasury yield, which lenders use as a guide to pricing loans. Investors’ expectations for future inflation, global demand for U.S. Treasurys and what the Fed does with interest rates can influence rates on home loans.

The threat of higher rates for longer pushed Treasury yields this week to their highest levels in more than a decade. The 10-year Treasury yield hit 5% earlier this week and was at 4.89% in midday trading Thursday. It was at roughly 3.50% in May and just 0.50% early in the pandemic.

CNN, the Associated Press, and the Southern California News Group’s Jonathan Lansner contributed to this report.

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