Mortgage rates hit a 23-year high
The good news: You’re seeing fewer “We did a thing!” posts from high-school acquaintances holding shiny new house keys. The bad news: You’re probably not getting your hands on shiny new house keys, either. The average 30-year fixed-rate mortgage reached 7.8% this week, their highest level since 2000.
Why is this happening?
It’s due partly to a change in Treasury yields. Mortgage rates usually rise alongside the 10-year Treasury yield, which can signify investor optimism in the economy. And the 10-year Treasury yield hit 4.8% on Tuesday, a height it hadn't reached since 2007.
So, investors thinking the economy looks good means you can’t buy a house? Yeah, kinda.
It’s also the Fed. Over the last 40 years, the Federal Reserve has been slowly undoing a hike-a-palooza from the ’80s that bumped interest rates close to 19%. Mortgage rates drop when the Fed loosens its grip on the country’s monetary policy. But last year, Fed Chair Jerome Powell decided the party was over and started hiking rates again—and much more quickly than first-time home buyers are used to—to combat inflation. Meaning: Mortgage rates spiked, too.
What this means for you: If you were one of the lucky ones who purchased a quiet bungalow at a mortgage rate of 3% during the pandemic, well, congrats. Now the housing market is basically at a standstill as high mortgage rates refuse to budge. Housing demand dropped to its lowest level since 1996 last week, according to the Mortgage Bankers Association, since owners don’t want to sell and lose their lower mortgage rate. So there isn’t much inventory even for those looking to buy.
Looking ahead…the Fed has signaled that interest rates will stay elevated, so we’re likely to see mortgage rates hit 8% (for some borrowers, they already have). If and when the job market weakens, the Fed could finally relax rates, which would make mortgages drop. Yay?—MM