This week, mortgage rates increased at a rate that was the quickest since 1987, as a result of resurgent inflation and the Federal Reserve’s decision to boost the benchmark interest rate once again in an effort to manage the situation.
According to Freddie Mac’s major mortgage survey, rates for 30-year fixed rate mortgages averaged 5.78 percent as of June 16, up from 5.23 percent the week before; this is the highest one-week rise in the poll in over three and a half decades. The interest rate on a mortgage has increased by more than two and a half percentage points since the beginning of the year, while the average rate for this week in 2021 was 2.93 percent.
Following hikes of a lesser magnitude in March and May, the Federal Reserve Board of Governors decided on Wednesday to boost the benchmark interest rate by a quarter of a percentage point. The yield on 10-year Treasury bonds is used as a guide for the movement of interest rates on 30-year fixed mortgages rather than the benchmark rate set by the Federal Reserve. This yield is affected by a variety of factors, including expectations regarding inflation, the actions taken by the Fed, and the reactions of investors to all of these things.
According to a statement released by Freddie Mac’s senior economist Sam Khater, “These increased rates are the outcome of a change in expectations about inflation and the path of monetary policy.” “Higher mortgage rates will lead to a moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic, which will ultimately result in a more balanced housing market.” “The housing market will ultimately be more balanced as a result of higher mortgage rates.”
The increase in mortgage rates, in conjunction with the meteoric rise in property prices, has decreased the amount that potential home buyers are able to afford, which is driving them farther and further away from the market. Already there are indications that the market is beginning to weaken.
The Mortgage Bankers Association said on Wednesday that mortgage purchase applications were up by 6.6 percent for the week ending June 10 when compared to the previous week, while applications were down by more than 15 percent when compared to the same time period in the previous year.
The assistant vice president of economic and industry forecasts for the organisation, Joel Kan, said that “ongoing inventory shortages and affordability issues have dampened demand,” which coincided with the steep surge in mortgage rates.