US Mortgage Rates Surge Towards 7 Percen

The US 30-year fixed-rate mortgage averaged 6.7% in the week ending September 29, up from 6.29% the week before, its highest level in 15 years.

Mortgage rates have more than doubled since the start of this year, as inflation has skyrocketed and led the US Federal Reserve to increase borrowing costs. The central bank’s aggressive campaign to fight inflation has concerned investors and disrupted bond markets.

The Fed’s unprecedented rate hikes are having the desired effect of easing demand, particularly in real estate. As a result of the higher rates, house prices have softened, and sales have slowed. However, there is still a shortage of available homes for sale, which has kept prices high.

The volatility seen in financial markets is an indicator of the uncertainty caused by the combination of resilient economic activity and expectations of decline in 2023.

The Fed does not set the interest rates borrowers pay on mortgages directly, but its actions influence them. Mortgage rates tend to track the yield on 10-year US treasury bonds. As investors see or anticipate rate hikes, they often sell government bonds, which sends yields higher and mortgage rates rise.

This week, the 10-year treasury touched 4%, a level not seen since 2008. All this uncertainty and volatility in financial markets is heavily impacting mortgage rates, which have increased more than a percentage point in the past six weeks while purchase applications decline.