Mortgage rates reached 5.78%, the highest level since 2008

US mortgage rates have reached their highest level in more than 13 years, the latest sign of market turmoil linked to the Federal Reserve’s campaign to cool inflation.

The average interest rate on a 30-year fixed-rate mortgage rose to 5.78%, the highest level since November 2008 and well above the 3.11% recorded near the end of last year, the mortgage giant, Freddie Mac, said Thursday. Last week, Freddie Mac reported an average mortgage rate of 5.23%.

The rise represents the largest weekly increase since 1987. It is expected to add to pressure on US home prices, which remain strong despite higher rates and lower affordability.

The Fed raised the benchmark interest rate to try to curb inflation and cool the housing market and the broader economy, but it’s a delicate dance. No one knows for sure what the impact of higher interest rates will be, but some investors fear that the Federal Reserve could push the US into recession. On Wednesday, the central bank raised interest rates by 0.75 percentage points, the largest increase since 1994.

Mortgage rates do not move automatically when the Federal Reserve raises interest rates, but they are strongly influenced by them. The Fed’s direct-controlled short-term interest rate has risen by 1.5 percentage points this year. The average mortgage rate rose about 2.7 percentage points, the largest increase of its kind in decades.

Mortgage rates are closely related to the 10-year US Treasury yield, which tends to move in tandem with expectations for the Fed’s benchmark interest rate. The 10-year yield this week hit its highest level since 2011, having doubled this year due to spiraling payments from price increases.

Freddie’s average weekly is based on his survey of lenders. A figure of 5.78% was recorded before the central bank’s announcement on Wednesday.

Real estate makes up a large part of the US economy, and it is particularly sensitive to interest rates. High mortgage rates can easily add hundreds of dollars to a buyer’s monthly payments.

Mike Fratantoni, chief economist at the Mortgage Bankers Association, said the Fed “has a profound disruptive effect on real estate markets.” “Housing demand has fallen very sharply, and we are starting to see a slowdown in the commercial real estate sector.”

Despite expectations of a quiet housing market in 2022, home prices in the United States are still hitting record levels, even as mortgage rates have risen in recent months. WSJ’s Dion Rabouin explains what’s driving demand, evidence of a slowdown on the horizon, and what that could mean for the economy. Photomontage: Ryan Trevis

Share your thoughts

Will a change in mortgage rates affect your decisions about buying or selling a home? If so, how? Join the conversation below.

Homebuyers in May paid about $740 a month to finance a median-priced home in the United States than they did in May 2021, when rates were closer to 3% and prices were lower, according to Realtor.com. News CorpAnd the

A parent of the Wall Street Journal, she runs Realtor.com.

Existing home sales fell to their weakest pace in nearly two years in April. But with too many buyers competing for too few homes, prices have continued to rise. Some potential buyers are abandoning their home search entirely, due to the high prices and exorbitant borrowing costs.

When the Covid-19 pandemic hit, the Fed quickly rolled out easy money policies aimed at keeping the economy afloat. It lowered interest rates to nearly zero to stimulate lending. It also embarked on a wave of asset purchases, announcing that it would buy an essentially unlimited amount of mortgage securities. Mortgage bond prices rose, yields fell. The resulting record low mortgage rates led to a refinancing boom.

Now, the Fed is also ending its purchases of mortgage-backed securities, which is also raising interest rates. The central bank bought about $13 billion in mortgage securities in its latest purchase, down from about $35 billion the previous month and more than $100 billion a month for most of 2021.

“This has been fermenting for a long time,” said Walt Schmidt, mortgage analyst at FHN Financial. “All because the MBS market is losing its biggest buyer,” he said, referring to mortgage-backed securities.

Investors who still buy mortgage bonds want to be paid for it. The additional yield on Treasurys, or the spread, that investors require to own mortgage-backed securities has risen this year.

It seems unlikely that the recent increase in mortgage rates will reverse soon. Federal Reserve Chairman Jerome Powell said he expected an increase of 0.5 or 0.75 percentage points at the Federal Reserve’s July meeting.

Some lenders were already quoting rates of 6% or more this week.

write to Orla McCaffrey at orla.mccaffrey@wsj.com and Sam Goldfarb at sam.goldfarb@wsj.com

Copyright © 2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Leave a Comment