US Mortgage Rates at Highest Since 2001

Facts

• Data published Thursday by Freddie Mac shows that the average 30-year mortgage in the US has an interest rate of 7.23%, the highest since 2001. Rates have risen far beyond the yield of the 10-year Treasury bond, which mortgage rates are typically benchmarked to.¹
• Mortgage rates stood at 7.09% last week, the first time rates crossed the 7% mark in 2023. The Mortgage Brokers Association has also said that mortgage applications have dropped to a 28-year low.²
• The rising borrowing costs are straining the housing market, causing fewer homeowners to list houses for sale. Buyers are competing for a 'woefully low' amount of housing supply, Freddie Mac says, as purchases of previously owned homes slowed down to their lowest in 2023 last month.³
• Mortgage rates have spiked due to the influence of the US Federal Reserve's ('Fed's') push to curb inflation by raising interest rates. A resilient US economy could spur the Fed to raise interest rates even more, making housing less affordable.⁴
• The yields of Treasury bonds that mortgages are typically pinned to move based off of investor anticipation and reaction to the Fed's moves. Concern that interest rates could rise further and lead to economic damage is keeping bond yields and mortgages high.⁴
• The sale of new homes rose 31% in July, as 25% of builders surveys said they have cut prices in a bid to increase sales. Both would-be buyers and sellers are disadvantaged, as homeowners grow wary of paying a much higher mortgage rate on a new home.⁵

Sources: ¹Wall Street Journal, ²Reuters, ³BNN, ⁴CNN and ⁵NPR Online News.

Narratives

• Narrative A, as provided by Bloomberg. The Fed's inflation crusade has put the prospect of affordable housing on the chopping block, as the crossing of the 7% threshold pushes homeownership beyond the reach of the average homebuyer. The prospect of rising interest rates and low supply could make housing a uniquely expensive commodity. There were predictions that the Fed would be lowering rates these years, but its continued hikes instead drive mortgage rates higher and higher.
• Narrative B, as provided by Intelligencer. The issue of affordable housing goes well beyond mortgages, as America's housing strategy has failed to keep up with housing demand. In spite of high demand, the number of housing units available continues to fall because of policymakers' prejudice against high-density housing, favoring more expensive single-family dwellings. Homeownership is not the solution to the housing crisis, and promoting high density, reasonably-priced development could help alleviate it.