Average Rate on 30-Year Fixed Mortgage Hits Highest Level Since 2000
According to Mortgage News Daily, the average rate on the popular 30-year fixed mortgage reached 8% on Wednesday morning. This is the highest level seen since mid-2000. The rise in mortgage rates corresponds with the surge in bond yields, which have now reached levels not seen since 2007. Mortgage rates generally follow the yield on the 10-year U.S. Treasury.
Investors have been closely watching economic indicators, resulting in sharp increases in rates over the past two weeks. The latest report on housing starts, which rose in September but not as much as expected, contributed to the spike in rates. Building permits, an indicator of future construction, fell slightly less than expected. Additionally, last week’s retail sales came in much higher than anticipated, creating uncertainty about the Federal Reserve’s long-term plans.
The increased rates have caused mortgage demand to plummet. The Mortgage Bankers Association reported a nearly 7% decline in mortgage applications from the previous week. Matthew Graham, Chief Operating Officer of Mortgage News Daily, noted that while these rates may seem extreme, many borrowers have already experienced rates above 8%. Some borrowers, however, are still able to secure rates in the 7s through buydowns and discount points.
Homebuilders are using buydowns, a financing tool, to help customers afford homes. This tactic is now the top incentive among builders, according to industry sources. D.R. Horton, the nation’s largest homebuilder, confirmed that they have been offering full point buydowns for the 30-year life of the loan as a builder incentive, a strategy not frequently used in previous cycles.
To put the current rates in perspective, just two years ago, the average rate on the 30-year fixed mortgage was as low as 3%. This means that a buyer purchasing a $400,000 home with a 20% down payment would now have a monthly payment nearly $1,000 higher than it would have been two years ago.
As rates continue to rise and mortgage demand declines, it remains to be seen how this will impact the housing market and the overall economy.