The rates could drive home sales to the lowest level in more than a decade as buyers and sellers pull back.
With Treasury yields on the rise, an 8% mortgage rate looks increasingly likely, a gain that could drive home sales to the lowest level in more than a decade as both buyers and sellers pull back.
The 10-year Treasury yield rose to its highest level since 2007 earlier this week, according to Dow Jones Market Data. Yields have been driven up in recent weeks by a combination of factors, including the Federal Reserve’s suggestion the target funds rate would remain higher for longer and political upheaval in Congress.
At 8%, rates would reach their highest level since August 2000, according to Freddie Mac data. That is high compared with recent years, but, as anyone who bought a home in the 1980s or 1990s will tell you, an 8% mortgage rate is far from staggering historically. Mortgage rates measured by Freddie Mac reached as high as 18.6% in 1981.
READ MORE The combination of a short supply of homes for sale and affordability constraints pushing more buyers to the sidelines has resulted in existing homes being sold at a seasonally-adjusted annual rate of 4.04 million. That is already nearly 22% lower than the level of sales in August 2000, the last time mortgage rates topped 8%.
Higher rates wouldn’t only impact buyers. They would also intensify the low supply of previously owned homes for sale, said Keith Gumbinger, vice president of mortgage website HSH.com. Builders have had healthy profit margins recently, allowing them to drum up demand by offering incentives and mortgage rate buy-downs, said Cristian deRitis, deputy chief economist for Moody’s Analytics. “They do have some room to manage and offset some of these higher interest rates, but they don’t have infinite resources,” the economist said.
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