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Homebuyers faced a significant blow to their purchasing power in August as mortgage rates continued their upward climb, hitting an average of 7.2% for the week ending Thursday. This surge marked the highest level since 2001, following the previous week’s increase to 7.09%, the highest in over two decades. In contrast, rates stood at 5.5% during the same period a year ago.
Freddie Mac’s Chief Economist, Sam Khater, linked this rise to indications of sustained economic strength that are expected to maintain upward pressure on rates in the short term. However, he also emphasized the impact of these elevated rates and the limited supply of unsold homes, contributing to the ongoing decline in existing home sales.
Khater suggested that a marginal increase in new home availability might provide some relief to the challenging housing inventory situation. These rising mortgage rates were largely influenced by the Federal Reserve’s actions to counter inflation, driving up the yield on the 10-year treasury bond, a pivotal benchmark for setting 30-year loan rates.
The effects of these escalating rates were evident in mortgage applications, which plummeted by 4% from the previous week. Simultaneously, purchase activity reached a 28-year low, according to data from the Mortgage Bankers Association for the week ending August 18. Joel Kan, Vice President and Deputy Chief Economist at MBA, noted that homebuyers withdrew from the market due to the combination of the heightened rate environment and reduced purchasing power. He also underscored that the shortage of available homes has amplified housing prices across multiple markets, exacerbating affordability challenges for potential buyers.