HomeWorldRates on mortgages hit 5.78 percent, the largest weekly increase since 1987

Rates on mortgages hit 5.78 percent, the largest weekly increase since 1987

The rate of mortgages jumped by nearly half percentage point in the past week, despite rising inflation and an interest rate increase of the Federal Reserve, according to Freddie Mac. The increase is the highest one-week rise since 1987.

The 30-year fixed-rate mortgage was at an average of 5.78 percent during the week that ended on June 16, an increase from 5.23 percent in the week preceding. The rates have increased by more than two-and-a-half percentage percentage points this year. They averaged of 2.93 percent at in the same timeframe last year.

“These higher rates are the result of a shift in expectations about inflation and the course of monetary policy,” said Sam Khater, Freddie Mac’s chief economist. “Higher mortgage rates will lead to moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic, ultimately resulting in a more balanced housing market.”

Rates have been rising rapidly since January, driving the cost of financing a home substantially.

Homebuyers are finding their homes more costly as inflation takes more of their earnings as the price of credit has lowered their purchasing capacity.

One year ago, a homeowner who put down 20% on a median $390,000 house and paid for the rest using a 30 year fixed rate mortgage at an average rate of 2.93% , made the monthly mortgage payments of $1,304, based on figures from Freddie Mac.

A homeowner today who purchases the same house at an average interest rate of 5.78 percent would be paying $1,827 per month in interest and principal. This would be $523 more per month, according to figures obtained from Freddie Mac.

Mortgage rates have shot higher this week due to lower inflation figures than expected this week and as a prelude to Federal Reserve rate hikes that were scheduled for Wednesday.

As if to fulfill its promise to increase interest rates to curb inflation The Federal Reserve raised the interest rate in the range of 75 basis point. It was the biggest increase in almost three decades. There’s no reason to believe that to see the rate increase stop at this point. In his remarks after an announcement Fed chairman Jerome Powell stressed the Fed’s dedication to bring inflation back to 2% or less goal , by increasing rates.

The Federal Reserve does not set the rates of interest that borrowers pay on mortgages, but its actions affect the rates. The mortgage rates are generally correlated with the 10-year US Treasury bonds. However, mortgage rates are also affected by the Fed’s policies regarding inflation. When investors anticipate or see rate increases, they usually sell bonds issued by the government which raise yields and, with it mortgage rates.

The yield on 10-year Treasury bonds climbed to 3.48 percent on Tuesdaythe highest level in 11 years in anticipation of the interest rate hike on Wednesday.

The rising rates are having resulted in putting stop to the market for housing that has been moving full speed for the past two years.

“Climbing mortgage rates continue to put pressure on the housing market, pushing the cost of homeownership ever higher,” said Hannah Jones, Economic Data Analyst at Realtor.com. “There has been little relief for American consumers at the grocery store, the pump, and in both the for-sale and rental markets.”

The rising rates are having resulted in putting stop to the market for housing that has been moving full speed for the past two years.

“Climbing mortgage rates continue to put pressure on the housing market, pushing the cost of homeownership ever higher,” said Hannah Jones, Economic Data Analyst at Realtor.com. “There has been little relief for American consumers at the grocery store, the pump, and in both the for-sale and rental markets.”

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