Rising interest rates have caused a sharp downturn in the housing market. According to the National Association of Realtors, home sales have fallen for six months in a row.
Mortgage rates rose sharply this week, as financial markets were rattled by fears of a potentially more aggressive rate hike from the Federal Reserve.
According to Mortgage News Daily, the average rate on the popular 30-year fixed mortgage rose 10 basis points to 6.28 percent on Tuesday. This comes after a 33 basis point increase on Monday. One week ago, the rate was 5.55 percent.
Rising interest rates have caused a sharp downturn in the housing market. Mortgage demand has dropped precipitously. According to the National Association of Realtors, home sales have fallen for six months in a row. Rising interest rates have done little to cool the red-hot housing market, which has been fueled by historically strong, pandemic-driven demand and record low supply.
The rate increase this week is the largest since the so-called taper tantrum in July 2013, when investors sent Treasury yields soaring after the Fed announced it would reduce its bond purchases.
Mortgage rates had fallen to more than a dozen all-time lows in the first year of the pandemic, as the Federal Reserve pumped money into mortgage-backed securities. It recently discontinued that support and is expected to begin liquidating its holdings soon.
As a result, interest rates began to rise in January, with the average rate beginning the year at around 3.25 percent and rising each month. There was a brief respite in May, but it was fleeting.
Higher home prices and interest rates have suffocated home affordability.
For example, on a $400,000 home with a 20% down payment, the monthly mortgage payment increased from $1,399 in January to $1,976 today, a $577 difference. This excludes both homeowners insurance and property taxes.
It also excludes the fact that the house is about 20% more expensive than it was a year ago.