Mortgage rates reach their highest rate in more than 20 YEARS – here’s what it means for new home buyers

Homebuyers face their highest mortgage rates since 2002 as experts warn that higher loans could pour cold water on the property market.

Data from government-backed lender Freddie Mac shows that a 30-year fixed-rate mortgage is now hovering at 7.09%.

It comes after economists predicted that rates could climb past 8% if the Federal Reserve decides to raise interest rates again next month.

Buyers now have to take out mortgages that cost $1,000 more per month than they would have had they bought two years ago.

Today, a family with a $400,000 house would be paying $2,551 a month – assuming they put down a 5% down payment.

Over their 30-year loan, they would pay $918,417 for the home, with $538,417 of that being interest only.

However, if they had purchased in August 2021, they would only have paid $1,576 per month for the same home. In total, they would pay $567,207 – including $187,207 in interest. At the time, the rates were 2.87%.

Mortgages have been one of the hardest hit victims of the Federal Reserve’s relentless interest rate hikes.

The Fed has raised its key rate 10 times over the past 15 months in an effort to rein in runaway inflation.

Rates on a 30-year fixed-rate mortgage are not directly tied to the Fed funds rate, but to the yield on 10-year Treasury bills.

These returns are influenced by inflation, Fed actions and investor reaction.

Typically, the spread between 30-year mortgage rates and the 10-year Treasury yield — known as the “spread” — hovers between 1.5 and 2 percentage points. For example, if the 10-year yield is 4%, the 30-year rate will be around 6%.

However, this “spread” has dramatically increased to around 300 basis points.

Experts say these conditions mimic those that preceded the financial crisis.

Rates haven’t reached 8% since 2000, according to data compiled by Freddie Mac

Cris deRitis, deputy chief economist at Moody’s Analytics, told MarketWatch: “Historically, the mortgage rate spread has only been around this level during periods of financial crisis such as the Great Recession or the early recession. 1980s.”

Soaring homeownership prices left 82% of property buyers ‘locked in’ to their current home because they priced in when rates were low, Freddie Mac officials said last month .

As a result, they are reluctant to move because it would mean having to swap for a mortgage at a higher rate.

One in seven homeowners who don’t plan to sell their home cited their current low rate as the main reason for staying put.

The number of new properties listed in June was then 20% lower than the same period last year.

Meanwhile, data from the Mortgage Bankers Association revealed the average loan size on a purchase request fell to $423,500 – its lowest level since January 2023.