Mortgage rates may rise much more, maybe as high as 8%, despite the fact that they have already risen to their highest level in more than 20 years. According to analysts who spoke with CBS MoneyWatch, it all hinges on how the Federal Reserve chooses to address persistent inflation in the coming months.
According to minutes from the Fed's July policy meeting that were made public this week, Fed members stated that they still see high inflation as a threat to the U.S. economy and believe that additional interest rate hikes may be necessary to address the problem.
It would be the 12th rate increase in 18 months if the Fed decided to do so at its upcoming meeting in September, which would result in even greater expenses for homeowners.
Mortgage rates don't always correspond to Fed rates.rate rises, although they typically follow the yield on 10-year Treasury notes. Mortgage interest rates can be affected by investor expectations for future inflation, the demand for U.S. Treasury securities abroad, and the Fed's interest rate decisions.
Higher mortgage rates can increase monthly expenses for borrowers by hundreds of dollars, which restricts how much they can pay in a market that many Americans already view as unaffordable.
previous mortgage rates
According to a recent Bankrate survey, one-third of those who want to buy a home think that high mortgage rates are preventing them from doing so. However, purchasers had to deal with significantly higher loan rates in the past.
Although it's important to remember that Americans bought houses before the current period of extremely low rates, Bankrate analyst Jeff Ostrowski said that high rates are difficult for homebuyers. In one frequently cited example, purchasers nevertheless managed to close agreements when interest rates on mortgages reached 18% in the early 1980s.
What causes such high mortgage rates?
Mortgage lenders will likely respond by either raising their rates or holding them close to today's 7.2%, experts predicted, if the Fed hikes rates again.
Interest rate policy of the FedRate increases started in March 2022 in an effort to reduce the highest inflation in four decades since people and businesses tend to put off making large purchases like homes and other items when borrowing rates are higher.
Lawrence Yun, chief economist at the National Association of Realtors (NAR), stated that if the 30-year fixed mortgage rate can maintain a high mark of 7.2% and the 10-year yield maintains a high mark of 4.2%, then this would be the high for mortgage rates prior to a decline. The mortgage rate might rise to 8% if it crosses this level and easily rises past 7.2%.
For homebuyers, many of whom already faced a difficult market this summer with fewer properties available and higher asking prices, an average 8% interest rate on mortgages would be bad news.prices. According to the National Association of Realtors, the national median home price increased to $402,600 in July from $359,000 at the beginning of 2023, and the average monthly mortgage for a single-family home is now $2,051 compared to $1,837 a year ago.
According to Yun, 8% mortgage rates would stop the housing market and possibly lower asking prices.
— This report was produced in part by The Associated Press.
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