This is not the first time this month that the 30-year fixed mortgage's average interest rate actually jumped above the eight percent mark. On Oct. 6, the 30-year fixed mortgage interest rate reached a 23-year high of 8.34 percent before steadily dropping down. It has gone below eight percent to 7.98 percent on Oct. 11 before steadily climbing back up to its current rate of 8.45 percent. The average rate for a 30-year fixed mortgage was as low as three percent just two years ago.
The uptick in interest rates for the 30-year fixed mortgage has been blamed on the uptick in bond yields to levels not seen since 2007. The 10-year Treasury bond breached the 4.9 percent mark while investors continue to monitor the results of a recent auction of 20-year Treasury bonds, which could also negatively affect interest rates for mortgages. (Related: U.S. mortgage rate surges to highest level in over two decades.)
Mortgage rates are a critical factor that prospective home buyers look into to find out whether homes are affordable. In previous periods when the Federal Reserve would increase interest rates, home prices declined alongside them. However, the current era of low home inventory has prevented this decline in housing costs from happening, resulting in many Americans who could have purchased homes today remaining sidelined from the market.
With potential new homeowners locked out of being able to afford mortgages, this is having a downstream effect on the real estate industry. The rise in rates is seeing mortgage applications tumbling to their lowest levels in almost three decades, according to the Mortgage Bankers Association.
Building permits, an indicator of future construction, have also fallen. Homebuilder sentiment has fallen to the lowest level in 10 years as homeowners who have locked in lower mortgage rates are unwilling to move or refinance at more expensive borrowing costs, thus keeping housing inventory low in a market that is already experiencing a long-term housing supply shortage.
"Here's another milestone that seemed extreme several short months ago," said Matthew Graham, chief operating officer of Mortgage News Daily. "The fact is that many borrowers have already seen rates over eight percent. That said, many borrowers are still seeing rates in the sevens due to buydowns and discount points."
Homebuilders are using these buydowns – financing techniques wherein mortgage buyers negotiate lower interest rates for at least the first few years of their mortgages – to help more homebuyers afford their new homes through mortgage subsidiary companies. But it is unlikely to have a significant effect on the current "deep freeze" that has gripped the real estate market.
Recently, the Homebuyer Demand Index of real estate brokerage firm Redfin fell to its lowest level. Strategists at finance firm Moody's noted in a report released this month that, in every single state in the country, housing affordability has diminished over the past few years with little relief in sight. The National Association of Realtors has also reported that the ability of a family to own a home is now at a decade-low.
Watch this episode of "Flyover Conservatives" as host Colton Whited interviews financial expert Kirk Elliot about how mortgage rates could continue exploding as the U.S. economy enters a recession.