Mortgage rates in the US have climbed for a seventh consecutive week, adding to the financial pressure facing prospective homebuyers as borrowing costs reach their highest level in three years.
The average rate on a 30-year fixed mortgage rose to 7.40 per cent in the week ending October 8, up from 7.28 per cent the previous week, according to Freddie Mac’s Primary Mortgage Market Survey. The equivalent rate was 6.30 per cent a year earlier.
Rates on 15-year fixed mortgages also increased, reaching 6.73 per cent compared with 6.60 per cent a week earlier.
The latest rise has followed a sharp increase in the yield on 10-year US Treasury bonds, which averaged 5.28 per cent during the week. Mortgage rates are not set directly by the Federal Reserve, but they closely follow movements in longer-term Treasury yields.
Joel Berner, senior economist at Realtor.com, said inflation expectations, a sell-off in the bond market and concerns over rising government debt had combined to push yields higher.
“This increase comes amid continued upward pressure from the 10-year Treasury yield,” Mr Berner said. “A wicked brew of inflation expectations, a broad bond market selloff, and rising fiscal deficits requiring new debt issuance is pushing bond yields higher, and mortgage rates are following.”
The higher costs are weighing on demand. Pending home sales fell year on year in both August and September, even before mortgage rates moved above 7 per cent, while sellers have been cutting prices at the fastest rate in four years, according to Realtor.com.
“These elevated mortgage rates have the housing market spooked,” Mr Berner said, adding that many buyers were already struggling with affordability before the latest increase.
Market conditions are more favourable for buyers who can purchase without a mortgage. Home prices were down 1.4 per cent year on year, while the number of homes listed for sale was up 5.4 per cent, according to the housing data cited by Realtor.com.
However, the rise in borrowing costs is expected to keep many would-be buyers on the sidelines, particularly as monthly repayments become more expensive and uncertainty over the direction of interest rates persists.
