On Thursday, U.S. mortgage rates reached 7.23%, marking a 2 percentage point increase compared to the same time last year. This rise in rates is the most significant since 2001.
The surge in mortgage rates has been driven by the Federal Reserve’s efforts to curb historic levels of inflation. As a consequence, the aspiration of homeownership has become more financially out of reach than ever before.
The trajectory of mortgage rates has been steeply upward, especially since the Federal Reserve’s actions to combat inflation. During the pandemic, rates had temporarily dropped, reaching as low as 2.65% in January 2021. However, over the subsequent years, they have nearly tripled. Approximately one year ago, the 30-year fixed-rate mortgage was at 5.55%. Since May, it has consistently exceeded 6.5%, and the upward trend has continued since mid-July, underscoring the ongoing strong demand in the housing market.
This ascent in mortgage rates correlates with the Federal Reserve’s decisive measures to raise interest rates as part of its strategy to manage inflation. In comparison to the 9% inflation rate recorded last year, the current rate has subsided to 3.2%.
Therefore, as the rate of inflation declines, mortgage rates persistently move upward.
To contextualize this situation, consider the first quarter of the year when the median selling price for homes in the U.S. was $429,000. If someone were to purchase a home at this price point with a 10% down payment and a 30-year loan term, the mortgage calculator provided by Zillow estimates that the total payment over time would exceed $940,000 due to the 7.23% interest rate.
Compounding this issue, the inventory of available pre-owned homes has contracted. Homeowners who previously secured more favorable interest rates are now hesitant to list their properties for sale. This combination of reduced housing supply and heightened costs has significantly contributed to a notable decline in overall home sales.
Disclaimer: The views, suggestions, and opinions expressed here are the sole responsibility of the experts. No Digest Pulse journalist was involved in the writing and production of this article.
