The same mortgage carried a monthly payment of around $2,995 seven months ago, meaning homebuyers are now paying roughly $405 more each month, or about $4,860 a year, on the loan.
Mortgage rates have risen 125 basis points since late February, according to the data.
Higher mortgage rates can add hundreds of dollars a month to borrowers’ costs, limiting homebuyers’ purchasing power. As rates rise, that can also lead prospective home shoppers to delay buying.
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In late February, the average rate on a 30-year mortgage briefly dipped to 5.98%, its lowest level going back to late 2022. The nearly 1 percentage point increase in the rate since then translates roughly into an additional $255 a month cost for a borrower financing a $400,000 home loan at the current average rate.
The housing market has been stuck in a rut this year in large part because of rising borrowing costs, as mortgage rates have kept marching higher in the months since the war between the US and Iran began in late February. Expectations of higher inflation amid surging oil prices have pushed up the long-term bond yields that lenders use as a guide to pricing home loans, driving mortgage rates higher.
Mortgage rates are influenced by inflation, Federal Reserve policy and bond-market investors’ expectations for the economy, among other factors. They generally follow the trajectory of the 10-year Treasury yield. That yield, which was at 3.97% in late February, before the war began, breached 5% on Monday for the first time since 2023. It was at 4.94% at midday trading on the bond market Thursday.
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Meanwhile, the Federal Reserve’s decision Wednesday to increase its key interest rate for the first time in three years in a bid to tame surging inflation could also put upward pressure on mortgage rates.
While the central bank doesn’t set mortgage rates, its decisions to raise or lower its short-term rate are watched closely by bond investors and can ultimately affect the yield on 10-year Treasuries. The Fed also signalled Wednesday that another rate hike could occur later this year.
The U.S. housing market has been in a slump since 2022, when mortgage rates began to climb from pandemic-era lows. Sales of previously occupied U.S. homes were essentially flat last year, stuck at a 30-year low. U.S. sales of those homes slowed again last month.
And the latest monthly tally of home purchase transactions that have yet to be finalised points to potentially more sluggish home sales in coming months.
Pending U.S. home sales inched up 0.3% last month from July and fell 4.7% from August last year, the National Association of Realtors said Thursday. There’s usually a month or two lag between a contract signing and when the sale is finalised, which makes pending home sales a near-term bellwether for the housing market.
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A sharp run-up in home prices, especially in the early years of this decade, and a chronic shortage of homes nationally, worsened by years of below-average home construction, have left many aspiring homeowners priced out of the market.
