The rate increase caused mortgage applications to drop
US mortgage rates have reached 7.5%, the highest they have been since November 2000, according to the Mortgage Bankers Association (MBA), as reported in an article by Bloomberg.
The contract rate on a 30-year fixed mortgage climbed by 12 basis points, the most since mid-August, to 7.53% in the week ended Sept. 29, it revealed. Meanwhile, the index of home-purchase applications fell 5.7% to 136.6, the lowest level since 1995.
How is the US housing market faring?
The findings show that the contract rate for 30-year fixed mortgages has risen by 12 basis points as the index of home-purchase applications has fallen by 5.7% to 136.6, the lowest level it has been since 1995.
“The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market. ARM loan applications picked up over the week and the ARM share increased to 8%, as some borrowers searched for ways to lower their payments,” said Joel Kan, vice president and deputy chief economist of MBA, in the organization’s newsletter.
The Market Composite Index, which is a measure of the volume of mortgage loan applications including refinancing activity, decreased by 6% to the weakest reading since 1996.
With the interest-rate hikes by the Federal Reserve heavily impacting the housing market since last year, bond yields have also increased as it is expected that the Fed’s policy rate will continue to be high. Borrowing costs continue to increase and put the 30-year fixed mortgage rate at 7.72%, on Tuesday, it was reported.
While also partly due to limited supply, increasing mortgage rates and elevated home prices have caused the current housing market to be as unaffordable as it has ever been.
As the labor market continues to power consumer spending, Fed officials have hinted that they will continue to keep interest rates elevated, possibly including another hike before the end of the year. This is an effort to subdue inflation.
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