Thirty-year mortgage rates have surged to the highest levels in seven years, increasing borrowing costs at a time when the housing market is slowing and prices have been falling. The 4.86% conforming rate at the end of October was the highest rate since April 2011, according to data from Freddie Mac. The average 15-year conforming mortgage rate climbed to 4.29% over the same period of time.
Optimism about economic growth has led to higher inflationary expectations, which eventually translate into higher interest rates and mortgage rates. Over the past two years, the yield on the 10-year U.S. Treasury has increased from a historical low of 1.35% in 2016 to 3.15% at the end of October. As a gauge for mortgage rates nationally, the increase in the 10-year Treasury has led to an overall increase in mortgage rates. The concern economists have is that as mortgage rates continue to increase, home sales and affordability may begin to falter.
A tight job market and rising wages may help alleviate the rise in mortgage rates, as a strong labor market and higher payrolls help maintain demand for homes.
Even with the recent rise in mortgage rates, rates are still low on a historical basis. As of this past month, the average mortgage rate since 1971 has been approximately 8.09%. Over the past 46 years, mortgage rates have transitioned from the 5% range in the early 70s to over 14% in the late 70s and early 80s, with the 30-year conforming rate hitting a record high of 16.63% in 1981.
Sources: Freddie Mac, Bloomberg, U.S. Treasury
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