Home Doll market Average long-term U.S. mortgage rates rise another quarter point

Average long-term U.S. mortgage rates rise another quarter point

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WASHINGTON (AP) — Average long-term U.S. mortgage rates hit their highest level in more than two decades this week and are expected to climb further as the Federal Reserve all but promises further rate increases in its battle to rein in persistent inflation.

Mortgage buyer Freddie Mac reported on Thursday that the 30-year average key rate had climbed to 6.92% from 6.66% last week. Last year, at this date, the rate was 3.05%.

The average rate on 15-year fixed-rate mortgages, popular among those looking to refinance their homes, rose to 6.09% from 5.9% last week, the first time it has exceeded 6% since the real estate crash of 2008. A year ago, the 15-year rate was 2.3%.

Many potential buyers have been driven out of the market as average mortgage rates have more than doubled this year.

Late last month, the Federal Reserve raised its benchmark borrowing rate an additional three-quarters of a point in an effort to rein in the economy and tame inflation, its fifth increase this year and third consecutive increase by 0.75 percentage points.

So far, there is little evidence that the Fed’s strategy is working.

Another government report on Thursday showed consumer inflation remained far too high at 8.2%. Combined with the 8.5% inflation at the wholesale level reported on Wednesday, most economists expect another sharp increase when the Fed meets in early November.

Aggressive Fed action has tripped up a housing sector that, apart from the start of the pandemic, has been hot for years. Sales of existing homes have fallen for seven straight months as rising borrowing costs put homes out of reach for more people.

Freddie Mac says that for a typical mortgage, borrowers who have stuck at the upper end of the rate range over the past year would pay several hundred dollars more than borrowers who signed contracts at the lower end of the range.

Mortgage rates do not necessarily reflect Fed rate hikes, but tend to track the yield of the 10-year Treasury. This is influenced by a variety of factors, including investor expectations for future inflation and global demand for US Treasuries.

By raising borrowing rates, the Fed is making it more expensive to take out mortgages and car or business loans. Consumers and businesses are likely to borrow and then spend less, which cools the economy and slows inflation.

Despite a still buoyant labor market, the government estimates that the US economy contracted at an annual rate of 0.6% in the second quarter that ended in June.