US mortgage rates reach 20-year high

Mortgage rates reached a 20-year high last week as the U.S. housing market continued its rapid slowdown, according to data released Wednesday by the Mortgage Bankers Association (MBA).

The 30-year fixed rate climbed to 6.94 percent in the second week of October, up from 6.81 percent a week earlier, marking the highest 30-year rate since 2002.

MBA’s Weekly Mortgage Applications Survey showed an overall decrease in mortgage applications, including a dropoff in refinancing. The share of refinance applications fell to 28.3 percent of total applications.

“The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement.

“The current 30-year fixed rate is now well over three percentage points higher than a year ago, and both purchase and refinance applications were down 38 percent and 86 percent over the year, respectively,” Kan added.

Meanwhile, the share of adjustable-rate mortgage (ARM) applications reached the highest level since 2008, rising to 12.8 percent of mortgage applications.

“ARM loans continue to remain a viable option for borrowers who are still trying to find ways to reduce their monthly payments,” Kan said.

Surging mortgage rates have also contributed to a decline in housing starts and other indicators of a healthy housing market.

Separate data from the National Association of Home Builders (NAHB) show that builder sentiment fell for the 10th straight month, while prospective homebuyer traffic dropped to its lowest point since 2012 — with the exception of the onset of the coronavirus pandemic in 2020.

“High mortgage rates approaching 7 percent have significantly weakened demand, particularly for first-time and first-generation prospective home buyers,” NAHB Chairman Jerry Konter said in a statement. 

“This situation is unhealthy and unsustainable. Policymakers must address this worsening housing affordability crisis,” Konter added.

Mortgage rates have more than doubled in the last year as the Federal Reserve battled rising inflation with several big rate hikes over the summer, cooling the once red-hot housing market.

Data released by the Labor Department last week showed the second consecutive month of strong inflation, which could lead to another rate increase.

Federal Reserve Chair Jerome Powell said in September the housing market might need to go through a correction to make homes more affordable again.

“For the longer term, what we need is supply and demand to get better aligned, so that housing prices go up at a reasonable level, at a reasonable pace, and people can afford houses again,” he said.