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According to Mortgage News Daily, the average interest rate on the popular 30-year fixed-rate mortgage was 8% as of Wednesday morning. This is the highest value since mid-2000.
The milestone came as bond yields rose to levels not seen since 2007. Mortgage interest rates are loosely based on the yield on 10-year US Treasury bonds.
Interest rates rose sharply this week and last as investors digest more economic data. On Wednesday, housing starts increased in September, although not as much as expected, according to the U.S. Census Bureau.
The number of building permits, an indicator of future construction activity, fell, but less than expected. Last week, retail sales were far higher than expected, creating more uncertainty about the Federal Reserve’s long-term plan.
According to the Mortgage Bankers Association, these higher interest rates have led to a collapse in mortgage demand, with applications falling nearly 7% last week compared to the previous week.
“Here’s another milestone that seemed extreme just a few months ago,” said Matthew Graham, chief operating officer of Mortgage News Daily. “The fact is that many borrowers have already seen interest rates above 8%. However, many borrowers are still seeing interest rates in the 7s due to buybacks and discount points.”
Builders use buybacks to help customers afford their homes. They do this through their mortgage subsidiaries.
While they used the financing instrument very sparingly in the past, according to industry sources, it is now the most important incentive for builders.
“Although our mortgage lender has been offering loans at slightly below market rates for most of this cycle (simply for competitiveness reasons), the full buyback for the 30-year term of the loan, which we recently described as an incentive for developers, not the case.” “something we have done in previous cycles, at least not on the broad, majoritarian basis that we do today. It may have been found in extremely limited quantities on select homes in the past,” said a spokesman for DR Horton, the nation’s largest homebuilder.
The average interest rate for the 30-year fixed rate was just 3% just two years ago. To put it in perspective, a buyer purchasing a $400,000 home with a 20% down payment would have a monthly payment of almost $1,000 more today than it did two years ago.
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