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The average rate on the popular 30-year fixed mortgage rate reached 8% on Wednesday morning, hitting its highest level since mid-2000, as reported by Mortgage News Daily.
This milestone coincides with the surge in bond yields to levels not seen since 2007. Mortgage rates tend to follow the yield on the 10-year U.S. Treasury.
This week, bond yields and mortgage rates experienced sharp rises as investors analyzed more economic data. On Wednesday, the U.S. Census Bureau reported an increase in housing starts for September, although it was lower than expectations. Additionally, there was a decline in building permits, which indicates a potential decrease in future construction. Last week, unexpectedly high retail sales also contributed to the uncertainty surrounding the Federal Reserve’s long-term plans.
As a result of these higher rates, there has been a significant decrease in mortgage demand, with applications dropping by nearly 7% last week compared to the previous week, according to the Mortgage Bankers Association.
“Here’s another milestone that seemed extreme just a few months ago,” commented Matthew Graham, the chief operating officer of Mortgage News Daily. He added, “Many borrowers have already experienced rates over 8%. However, some borrowers are still able to secure rates in the 7s through buydowns and discount points.”
Homebuilders are now using buydowns, facilitated by their mortgage subsidiaries, to assist customers in affording their homes. This financing tool was previously used sparingly but has become the primary incentive among builders, according to industry sources.
“In previous cycles, our mortgage company offered slightly below market rate loans to remain competitive. However, the full point buydown for the entire 30-year loan term that we currently refer to as a builder incentive is something we didn’t do on such a broad basis in the past,” stated a spokesperson from D.R. Horton, the largest homebuilder in the nation.
Just two years ago, the average rate on the 30-year fixed mortgage was as low as 3%. To demonstrate the impact of the recent rate increase, consider a buyer purchasing a $400,000 home with a 20% down payment: their monthly payment today would be nearly $1,000 more than it would have been two years ago.
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