30-Year Mortgage Rates Surge to Highest Level in 20 Years as Home Prices Remain Elevated

A 'For Sale' sign stands outside a home in Colorado Springs, Colo., on June 22, 2023. David Zalubowski/AP Photo

The 30-year mortgage rate surged to the highest level in two decades as home rents remain elevated.

Freddie Mac released the results of its “Primary Mortgage Market Survey” on Aug. 17, which showed that the 30-year fixed-rate mortgage rate had risen 0.13 percent from last week, to an average of 7.09 percent.

The last time the 30-year fixed rate mortgage exceeded 7 percent was November 2022.

Demand for homes have also been hit hard by lower affordability, but low housing inventory remains the main cause behind sluggish sales.

30-Year Mortgage Rates Rise to 7 Percent Again

Freddie Mac’s Chief Economist Sam Khater said that better than expected economic growth and the rise of the 10-year Treasury yield are some of the factors contributing to the high mortgage rates.

“The last time the 30-year fixed-rate mortgage exceeded 7 percent was last November. Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales,” he added.

The 30-year fixed-rate mortgage averaged 5.13 percent the same week last year, reported Freddie Mac.

At the same time, the 15-year fixed-rate mortgage averaged 6.46 percent, an increase from last week, when it averaged 6.34 percent.

A year ago at this week, the 15-year fixed-rate mortgage averaged 4.55 percent.

The Federal Reserve has raised interest rates to combat inflation from near zero for over a year, to a range of 5.25–5.50 percent, which has had an upward effect on mortgage rates nationwide.

A cut in interest rates would alleviate financial stress on mortgage holders.

Most economists do not believe that the Fed will cut its policy rate in September, but would instead wait until sometime in early 2024 to loosen its monetary policy.

Home Prices Rise Again in June

This latest announcement comes, as home prices have reportedly risen 0.8 percent in June, after slowing for over a year, according to a report from Black Knight, while rental prices rose in July.

The rise in housing prices have pushed prices to record levels in around 60 percent of the nation’s major housing markets, mainly in the Northeast and Midwest.

“We’ve been noting for some months that the recent rate of home price gains would have a lagging, but significant, impact on the annual rate of appreciation,” said Andy Walden, Black Knight vice president of Enterprise Research.

“Well, June marked that inflection point. Not only has the Black Knight HPI reached a new record high—on both seasonally adjusted and non-adjusted bases—but 60 percent of major markets have done so as well.”

However, skyrocketing prices, combined with a lack of homes for sale, has allowed homeowners to recoup much of the equity lost in 2022, when high mortgage rates caused a slowdown in the market.

Total homeowner equity exceeded $16 trillion in June, according to Black Knight.

This gives the average mortgage holder $199,000 in equity, which is up from the first quarter, but down from $207,000 from the same time last year.

“Rising home prices have boosted homeowner equity levels as well, which had been retreating from their 2022 highs not very long ago,” Mr. Walden added.

“In fact, despite total outstanding mortgage debt topping $13 trillion for the first time in history, much of the decline in equity we’d tracked since last year’s peak has since been recovered,” he continued.

Average Rental Costs Slightly Climb Nationwide

Meanwhile, the rise in rent prices last month suggested that the rental market is continuing to put upward pressure on overall inflation.

A new report from Rent.com on Aug. 18 showed that rents rose by less 0.3 percent from the month before, on an annual basis.

Regions with the highest year-over-year rental price growth in July were in the South and Midwest, with the exception of New York, which saw rents rise by 13 percent over the past year.

“Broad trends across the industry including an influx of new inventory and demand below seasonal norms have worked to slow rent growth to below-normal rates,” the report said.

“Prices even dipped negative year over year in May. But rents continue to be elevated in the longer term.”

The national median rent price is now $2,038, just $15 below from the record set in August 2022.

On the other hand, rents in July have still not risen to the same rapid pace as in the first months of the pandemic, when the Fed slashed interest rates to near zero.

Since March 2020, average rent prices in United States have surged 25 percent, an average increase of $400 per month, adding a financial burden to households already struggling with high inflation.

Higher rents were a contributing factor to rising prices over the past two years, making up about 7 percent of the consumer price index.

The report added that if rents continued to rise at this current rate, this month would mark a new record for average rent prices.