The most aggressive interest rate hike cycle by the Federal Reserve in the past forty years has resulted in the highest housing financing costs in twenty years for homebuyers. If the Federal Reserve continues to raise interest rates, mortgage rates will reach a historical high of 8%.
On August 17th, Freddie Mac, a US housing finance institution, released the latest data showing that the average interest rate for 30-year fixed-rate mortgages in the US rose to 7.09%, the highest level since April 2002, up from 6.96% a week ago. It has been climbing for four consecutive weeks, compared to only 5.13% a year ago. The average interest rate for 15-year mortgages also increased from 6.34% last week to 6.46%, compared to 4.55% a year ago.
Analysis indicates that the increase in 30-year mortgage rates is mainly influenced by the rise in the yield of the US ten-year Treasury bond. Lawrence Yun, Chief Economist of the National Association of Realtors, stated in a media interview that the 30-year mortgage rate is currently at a critical stage. If the rate surpasses 7.2%, it is very likely to reach 8%:
&#34;If the 30-year fixed-rate mortgage rate can stay at a high level of 7.2%, and the 10-year yield remains at 4.2%, then the mortgage rate will reach its peak. If it surpasses this threshold and easily exceeds 7.2%, the mortgage rate will reach 8%.&#34;
Cris deRitis, Deputy Chief Economist at Moody's Analytics, also believes that if the Federal Reserve raises interest rates again, mortgage rates will reach 8%:
Currently, the spread between 30-year fixed-rate mortgages and 10-year Treasury bonds is about 300 basis points, which is extremely unusual. Historically, the spread of mortgage rates has only reached this level during financial crises.
If the Federal Reserve raises interest rates again and the 10-year US Treasury bond continues to rise, then mortgage rates will reach 8%.
According to a previous report by Wall Street Journal, after the release of the overnight Federal Reserve minutes, the yield on 10-year US Treasury bonds soared, breaking through 4.281% during the trading day, reaching the highest closing yield since June 2008.
US Treasury bond yields have risen across the board, with the 30-year Treasury bond yield reaching its highest level since October 1999, and the 2-year Treasury bond yield soaring to 5.00%.
(Note: The translation of the article content is provided for reference only and does not constitute investment advice.)
According to data from Black Knight Inc, the continuous interest rate hikes by the Federal Reserve have led to a continuous decline in the purchasing power of potential buyers. Coupled with insufficient inventory supply, housing prices have been pushed up, and market trading volume has continued to decline. The affordability of housing in the United States has reached its lowest point since 1984.
According to the latest data released by the Mortgage Bankers Association (MBA) on Wednesday, the surge in mortgage interest rates has caused a 0.8% decline in overall mortgage loan applications for the MBA. Both home purchase mortgage loans and refinancing activities have been affected. Among them, home purchase mortgage loan applications have declined for the fifth consecutive week, reaching the second lowest level since 1995; refinancing loans have declined by 1.9% for the fourth consecutive week.
The rapid rise in interest rates has also prompted some existing homeowners who were planning to change homes to pause, reducing the inventory of existing homes for sale, and new buyers can only turn to purchasing new homes. Robert Dietz, Chief Economist of the National Association of Home Builders, said that new homes typically account for 12% of the total housing inventory, but currently account for at least 30% of the entire market.
If the 30-year mortgage interest rate reaches 8%, the heat of the real estate market may further plummet. However, Yun believes that this will not cause a decline in housing prices as buyers and sellers decrease simultaneously:
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In the case of 8% interest rates, the real estate market will freeze again, with fewer buyers and sellers significantly reduced. However, high interest rates will not immediately affect housing prices. As long as the job market does not cool down rapidly, house prices will remain stable, although home sales will decline again. If there is an economic recession caused by widespread layoffs, then due to some people being forced to sell houses and fewer buyers, housing prices will decline.
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DeRitis believes that high interest rates have already had an impact on the U.S. housing sector:
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&#34;Especially for first-time homebuyers, mortgage interest rates above 6% have caused a large number of potential buyers to exit the market.&#34;
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The continuous rate hikes by the Federal Reserve have led to a continuous increase in housing financing costs. Currently, we are at a critical stage in the trend of 30-year mortgage rates. If the 30-year mortgage rate surpasses 7.2%, it is highly likely to reach 8%.

US mortgage rates soar to 7%, reaching a 20-year high! Analysis: 8% is not a dream.