Mortgage rates reached their highest levels since 2001, according to data released on Wednesday by the Mortgage Bankers Association.
The 30-year fixed rate mortgage rose for the tenth consecutive week, reaching 7.16% as purchase applications fell. The increase occurs after the Federal Reserve thrice increased the target federal funds rate by 0.75% increments, marking the fastest rollback of expansionary monetary policy in decades.
“The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” Mortgage Bankers Association Vice President and Deputy Chief Economist Joel Kan said in a statement. “Refinance applications were essentially unchanged, but purchase applications declined 2% to the slowest pace since 2015 — over 40% behind last year’s pace.”
Amid the rise in mortgage rates, which began to accelerate when the Federal Reserve hiked interest rate targets in both June and July, the ratio between average total monthly payments and median income surged to 43.3% as of August, exceeding levels witnessed ahead of the 2008 housing crisis, according to data from the Federal Reserve Bank of Atlanta’s National Home Ownership Affordability Monitor Index. Some findings nevertheless indicate that housing prices are falling due to plummeting demand.
“Rising rates are already greatly impacting affordability,” Heritage Foundation economic research fellow Joel Griffith told The Daily Wire. “A mortgage payment today on a median-priced home costs $3,000 — more than double the typical payment just two years ago as mortgage interest rates soared from under 3% to more than 7% even as home prices jumped 36% to all-time record highs, even when adjusted for overall inflation.”
Griffith said that higher interest rates will place upward pressure on mortgage payments even as prices for residential real estate begin to decline. “For instance, even if home prices tumble by 20%, a mortgage on a median-priced home will be close to $2,400 — still far higher than the $1,400 mortgage payment on the identical home just two years ago,” he remarked.
The Federal Reserve, which typically slashes or raises target rates at 0.25% increments, is pivoting away from a monetary stimulus regime intended to boost economic activity during the lockdown-induced recession. Contractionary policy, however, restrains economic activity by increasing borrowing costs for consumers and businesses. Many economists have criticized policymakers in recent months for suddenly reverting to a hawkish posture toward inflation.
“The Federal Reserve anticipated the rise in mortgage rates. Low interest rates were a natural consequence of the Federal Reserve printing money — more than doubling its balance sheet from just $4.2 trillion in March 2020 to more than $8.8 trillion today,” Griffith added. “The Federal Reserve specifically meddled in the housing market by purchasing $1.2 trillion of mortgage-backed securities from Fannie Mae, Freddie Mac, and Ginnie Mae — doubling the amount of securities it owned. This drove home prices higher by driving down mortgage rates — enabling borrowers to take out ever bigger loans.”
Economic issues are top-of-mind for Americans preparing to cast ballots in the midterm elections. One recent poll from ABC News and The Washington Post painted a generally dismal picture for the Democratic Party as 84% of voters indicated that the economy was the top issue on their minds, yet skewed 16% toward Republicans with respect to trust in handling the issue.