Mortgage rates just hit a 22-year high—it’ll continue to be a ‘drag on home sales,’ chief economist says

Sydney LakeSeptember 29, 2023 at 10:33 AM Getty ImagesThe 30-year fixed-rate mortgage just hit its highest point in nearly 23 years, coming in at 7.31% on Thursday. While the mortgage rate has fluctuated somewhat during the past few months, it’s stayed heartily above 6%. This time last year the rate was 6.7%. But above 7% could become the new norm. Last week, the 30-year fixed-rate mortgage averaged 7.19%.The last time mortgage rates were this high was back in 2000, when they hit more than 7.4%, according to historical Federal Reserve data. That was ahead of Fannie Mae and Freddie Mac purchasing billions in subprime mortgages and the subsequent housing bubble.“The 30-year fixed-rate mortgage has hit the highest level since the year 2000,” Sam Khater, Freddie Mac’s chief economist, said in a Thursday statement. “However, unlike the turn of the millennium, house prices today are rising alongside mortgage rates, primarily due to low inventory. These headwinds are causing both buyers and sellers to hold out for better circumstances.”Holding out for those “better circumstances” might not happen anytime soon, though. Although the Fed didn’t hike interest rates in September, “the door is still very open to another increase by year’s end, and projections show that the Fed expects rates to remain elevated over the next few years,” chief economist Danielle Hale tells Fortune.Surging mortgage rates and subsequent astronomical monthly payments have made purchasing unattainable for many. Indeed, mortgage applications continue to decrease.“Mortgage applications continued their downward trend last week, as mortgage rates reached their highest levels in nearly 23 years,” MBA president and CEO Bob Broeksmit said in a statement. “Rates over 7% and low for-sale inventory continue to create affordability challenges for prospective buyers. Until rates start to come back down, we anticipate housing market activity will remain slow.”Rising mortgage rates have stretched new buyers thin, with one-fourth of new buyers paying at least $3,000 in average monthly principal and interest payment on a 30-year fixed rate loan in July 2023, according to real estate data and analytics firm Black Knight.That means some homeowners could be spending more than 60% of their paychecks on their mortgage alone, assuming that average U.S. monthly earnings in July 2023 were just $4,600, according to economic data firm CEIC.“That’s generally considered a high burden, and one reason why, in our estimation, affordability is at a 30-year low,” Mark Fleming, chief economist at Fortune 500 financial services company First American, previously told Fortune.One of the long-term ramifications of higher mortgage rates is the “lock-in” effect in which current homeowners are holding on to their properties out of fear of rising rates on a new home. It’s also been one of the contributing factors for the fall in new listings—and why existing home sales would trail the year ago total by almost 16% in 2023, Hale says.“Longer-term, higher mortgage rates are likely to be a drag on home sales as costs put buying out of reach, causing many households to delay plans to move,” she adds. “The bigger the gap between market mortgage rates and the rates homeowners enjoy on their existing mortgages, the more likely it is that homeowners are to feel locked in place and choose to stay put.”This story was originally featured on

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