Mortgage rates have reached their highest level in over two decades, with the 30-year fixed-rate mortgage (FRM) rising to 7.09%, according to the latest data from Freddie Mac. This marks a significant increase from last year when rates averaged 5.13%. The surge in mortgage rates is being driven by higher treasury yields and a shortage of available homes for sale, creating a double-whammy for housing affordability. Experts predict that while rates may not return to the record lows seen in 2020, a higher rate normal is expected to become the new reality in the housing market.
In the past 21 years, the 30-year fixed mortgage rate has peaked at 7.18% in March 2002. The current rate of 7.09% slightly surpasses the 7.08% level observed in late 2020. The improving economy and rising 10-year Treasury yields are the main factors behind the increase in mortgage rates, according to Sam Khater, Freddie Mac’s Chief Economist. While demand for homes has been impacted by affordability challenges, the root cause of stalling home sales remains the low inventory of available properties. Lawrence Yun, chief economist at the National Association of Realtors, believes that the era of ultra-low interest rates is over, stating that rates below 3% were an exceptional measure during uncertain times. Although some relief may be on the horizon, experts do not anticipate a significant decline in rates until at least 2024, and even then, a return to the rates of the past is unlikely.
Mortgages Hit Record Rates: 30-Year Fixed-Rate Mortgage at Highest Level in 21 Years
The cost of a 30-year fixed-rate mortgage (FRM) has soared to its highest level in 21 years, reaching 7.09%. This surge in mortgage rates is according to the Primary Mortgage Market Survey (PMMS) results released by Freddie Mac. In the past 21 years, the weekly average of the U.S. 30-year fixed mortgage peaked at 7.18% in March 2002. This week’s rate of 7.09% slightly surpasses the 7.08% level seen in October and November last year.
Affordability Challenges: High Mortgage Rates and Low Inventory
Higher treasury yields are the driving force behind the increase in mortgage rates. As the 10-year Treasury yield rises, mortgage rates follow suit. Simultaneously, the housing market is grappling with a low inventory of homes for sale, leading to high home prices. This combination of rising mortgage rates and high home prices poses a significant challenge to housing affordability.
Experts Forecast Higher Rate Norms
Experts in the industry do not anticipate mortgage rates to return to the levels seen in 2020. Instead, they expect a "higher rate normal." Sam Khater, Freddie Mac’s Chief Economist, attributes the rise in mortgage rates to the improving economy and the increase in the 10-year Treasury yield. He notes that demand for homes has been affected by affordability issues, but the main factor hindering home sales is the limited supply of available homes.
Pandemic Rates Were an Exceptional Measure
Lawrence Yun, chief economist at the National Association of Realtors, believes that the era of 3% interest rates for 30-year fixed mortgages is over. He states that the historically low rates were an exceptional measure taken during uncertain times. While there may be some relief ahead, it is unlikely that rates will return to those levels anytime soon.
Mark Fleming, chief economist at First American Financial Corp, echoes this sentiment. He does not anticipate rate declines in the near future, suggesting that it may not happen until 2024 or later. Even if rates do decrease, they are not expected to return to the rates of previous years, such as the 6% mortgage rates that were once considered normal.
In conclusion, the cost of a 30-year fixed-rate mortgage has reached its highest level in 21 years, at 7.09%. This increase can be attributed to higher treasury yields and a low inventory of homes for sale. Experts predict that mortgage rates will not return to the historically low levels seen in 2020, but instead, a higher rate normal is expected. While some relief may be on the horizon in the future, it is unlikely that rates will drop significantly in the near term.