Mortgage rates rose above 7% as the Federal Reserve (Fed) slowed its economy.

Mortgage rates this week broke through a 20-year high of 7%, the latest sign that the Fed’s aggressive move to slow the broader economy is already hitting the housing market. Mortgages, the most popular home loan product, rose to 7.08%, according to data released Thursday by Freddie Mac. Mortgage rates rose to their highest in April 2002 and will continue to rise as the Fed moves swiftly to tame the hot housing market, a key step in lowering rent costs and ultimately battling inflation in the wider economy. no see. Banks don’t directly set the cost of mortgages, but changes in policy rates, known as the federal funds rate, affect the economy and affect all kinds of loans. The Fed has raised interest rates five times since March, raising the base rate from 0% to 3 to 3.25%. The central bank is expected to raise rates by an additional 0.75 percentage points next week Calculate how much more mortgage costs will add as interest rates rise Aroused widespread concern You can see that the Fed is putting the brakes on the economy with too much power. [added] Mortgage rates are still low.’ But in a short period of time, we’ve raised mortgage rates by a few percent,” said Diane Swonk, chief economist at KPMG. “The rate at which they raise interest rates is itself unstable.” Post reporters Damian Paletta and Rachel Siegal explain how a recession begins. (Video: Hope Davison, Drea Cornejo/The Washington Post, Photo: Michael S. Williamson/The Washington Post) Average mortgage rates have risen dizzyingly fast. A year ago it was 3.09%. By the end of March, the average 30-year fixed mortgage rate was less than 4%. The 3.86%p increase from 3.22% in January to 7.08% is the steepest increase in a year. The previous record was 3.59 percentage points in 1981. In September, prices rose again, guaranteeing further rate hikes. For much of the pandemic, low interest rates meant ambitious home buyers flooded the market, competing for a few possible homes and skyrocketing prices. But now, wary of pouring hundreds of dollars more each month on mortgage loans, buyers are crouching to increase the supply of available homes and lower prices overall. This year, when interest rates were below 4%, a family with a median household income of $71,000 could buy a home for $448,700 with a 20% down payment. According to Realtor.com, you could buy a home for $339,200 this week at an interest rate of around 7%. House prices are falling at a record rate. According to the Case-Shiller Home Price Index released earlier this week, prices were up 13% in August from a year earlier, down from a 15.6% gain in the previous month. The 2.6 percentage point difference between the two months is the largest decline in the history of the index, which debuted in 1987. On Wednesday, Zillow announced it had laid off 300 employees in several departments, including home loan and closing services. Demand for mortgage loans also plummeted as quickly as interest rates soared. Total applications are the lowest since 1997, according to the Mortgage Bankers Association. Refinancing is down 86% from a year ago, and mortgage lenders across the country, including major banks, have laid off workers as the market slows. And interest rate hikes have raised interest in floating rate mortgages. ARM’s application share was 12.7%, and homebuilders were also in trouble. According to a report by the U.S. Department of Housing and Urban Development and the Census Bureau earlier this month, total housing starts fell 8.1% to 1.44 million households a year, seasonally adjusted. So far this year, single-family housing starts have decreased by 5.6% compared to this time last year. Confidence in construction companies also fell for the 10th month in a row in October, falling to the lowest level since 2012. The year of the epidemic began in 2020. “This is the first year since 2011 that single-family home construction has declined,” said Robert Dietz, chief economist at the National Association of Home Builders, in a statement. said. “And given expectations that the Fed action will continue to raise interest rates, we expect a further decline in single-family homes in 2023 as housing contraction continues.” Nevertheless, the Fed’s tools are limited and officials routinely buy housing, Fed President Christopher Waller said in a speech this month that “we are beginning to see a correction for excess demand in interest-sensitive sectors such as housing.” “But more action is needed to bring down inflation meaningfully and consistently.” It is not yet clear when and how the Fed’s rate hikes will overtake inflation elsewhere in the economy. Rate hikes are designed to block demand, but do nothing to solve supply-side problems like oil and gas shortages, cheap apartments or chips for new cars. Overall, consumer prices remained stubbornly high in September, up 8.2% year-over-year. Rents also increased 7.2% last year and rents increased 0.8% from August to September. Goldman Sachs predicts that overall housing inflation will peak at 7.5% next spring and then slowly decline to less than 6% by the end of 2023. This has a huge impact on Fed policy, as housing costs make up a large portion of the commodity basket. It is used to measure inflation in an economy. As the Fed fights inflation, concerns are rising that inflation is over-correcting. But a slowing housing market could also finally cool rental prices. According to Realtor.com, national rent growth fell at the slowest annual rate since June 2021 (7.8%). Average U.S. rents fell for the second time in eight months in September. Through 2020 and 2021, sales prices in the Hudson Valley exploded as demand for a few homes surged in New York City and elsewhere. But now as mortgage rates soar, the number of available homes has more than doubled in the past three months from about 150 to about 380, said Ryan Basten, a broker at Berkshire Hathaway HomeServices Nutshell Realty. The market is returning to some version of normal. But Basten said there is a lot of uncertainty about the future. He confirmed the recent surge in mortgage rates. 5% were “not that bad” and 6% were “workable”. But with the Fed poised to raise rates two more times before the end of the year, Basten said he and others in his industry are “worrying if there is a real recession in the market.” what we are dealing with now. I can’t see mortgage rates going up to 10 [percent]. If you do that, it will feel like a recession,” Basten said. “eight [percent] feel bad. 10 percent said, ‘Wow, where are you going from here?’ ”
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