Mortgage Rates Top 6%

Mortgage Rates Top 6%

Just days after a hotter-than-expected CPI report, we have seen the implications of a more aggressive Federal Reserve in the mortgage market. Shortly after the report was released on Tuesday, September 13th, we saw a dramatic increase in long-term rate projections. This means that mortgage rates were quick to follow. In fact, this trend continues the trend of some of the largest rate increases in the shortest amount of time. As mortgage rates continue higher, that should slow demand even further, helping home price appreciation. This is what to expect as mortgage rates top 6%.

Average Mortgage Rates

The average interest rate on the most commonly used home loan, the fixed-rate mortgage, has now rose above 6%. This is the first time mortgage rates have reached this level since the Great Financial Crisis of 2008. Mortgage rates have increased a historical amount in a short period of time. In fact, mortgage rates are now more than double what they were at this time last year, and close to 1.5X higher than the lows in early 2021. For buyers and sellers alike, these high mortgage rates will slow the real estate market. This will likely lead to longer days-on-market, more supply, and a more neutral real estate market.

Federal Reserve’s Impact

For those who do not know, the Federal Reserve does not control the longer-term rates. However, they do control the shorter-term rates. This, in turn, leads to higher expectations of longer-term rates. As these expectations increase, we see mortgage rates increase. The higher the FED raises rates in the short-term, the higher the longer-term rates will go eventually. With the Federal Reserve acting aggressively to lower price appreciation in every industry, not just real estate, we are likely going to see higher rates. While we do not believe they will stay above 6% for a long time, it is important to notice this as a long-term historical average rate. Much higher from here, and housing could slow the overall economy dramatically.

Economic Implications As Mortgage Rates Top 6%

We have already seen the higher mortgage rates have their impact on the real estate market. Mortgage activity, applications, and refinances have all nose dived this year. In fact, some months this year have seen close to a 20% decrease in mortgage activity from the month and year prior. However, mortgage activity is still in line with the pre-pandemic levels, which is a positive.

The average interest rate on a 30-year fixed-rate mortgage rose by a fair amount in the last week. This increase, which was 7 basis points from the week prior, sent mortgage rates higher than 6%. The last time we saw the mortgage rate at 6.01% was towards the end of the financial crisis and Great Recession. The MBA, Mortgage Banker’s Association, also points out the decrease in loan applications. Loan application volume fell last week by 1.2%. This reading has led to seeing a total of 64% less mortgage activity than last year. Still, real estate transactions are closing, and we are still on amazing pace for the year.