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Mortgage rates hit 14-year high

Poised to keep growing as Fed eyes interest rate raise

(Photo Illustration by The Real Deal with Getty Images)
(Photo Illustration by The Real Deal with Getty Images)

Mortgage rates hit yet another new high and may continue to rise as the Federal Reserve looks to tackle inflation.

The average rate on a 30-year fixed mortgage hit 5.89 percent this week, according to a Freddie Mac survey reported by the Wall Street Journal. Rates are roughly double from what they were a year ago and exceeded a recent pandemic high set in June.

The average rate is the highest Freddie Mac has recorded since 2008.

The housing market in recent years has been a tale of topsy-turvy borrowing costs. Mortgage rates hit historic lows during the pandemic, triggering a burst of activity for loan providers and firing up the housing market.

Then came an abrupt slowdown when the Fed started hiking interest rates earlier this year. Mortgage rates started to rise to levels not seen in years. The housing market rapidly began to cool and mortgage companies were forced to lay off employees left and right.

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Rising rates put a significant dent into demand. Last month, mortgage applicatins dropped to turn-of-the-century levels as rates continued to rise, even if they were not high by historical standards. Still, it sidelined prospective buyers and virtually shut down refinancing.

More bad news could be on the way for prospective buyers seeking a mortgage. The Fed appears poised to once again lift rates by the end of the month, perhaps by as much as 0.75 percentage points, sending borrowing costs up and possibly spurring another spike in mortgage rates.

There may be a lag, however, should the Fed follow through on another rate hike. After the Fed in July raised rates a historic 75 basis points, mortgage rates briefly retreated. The slight upset to conventional wisdom could be chalked up to other factors, including inflation, unemployment and jobless claims, in addition to individual factors like credit scores and down payments. Mortgage rates tend to take their cue from the rate on 10-year Treasury notes.

— Holden Walter-Warner

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Housing MarketMortgage RatesMortgages