Mortgage interest rates have once again hit a new high, approaching the highest they have been in 23 years. This is due in part to better than expected economic performance, which caused rates to spike. As interest rates climb towards eight percent, investors have become worried and homebuilder sentiment has dropped about the possibility of the market improving in the near future.
Interest Rates Approach 8%
Interest rates for 30-year fixed interest mortgages with conforming loan balances hit a high of 7.72% in the first week of October, the highest they have been since the year 2000. For a time at the beginning of the year, interest rates had fallen to around 6%, but now it appears that they may hit 8% by the end of the year. This would put an even further squeeze on the housing market as people struggle to afford the high interest mortgages that are now the norm.
Strong Economic Data Causes Rise in Interest Rates
This increase in interest rates, ironically, is due to unusually strong economic data, with yields on 10-year treasury bonds remaining high and unemployment remaining low (at around 3.8%). The Federal Reserve has announced that it will not be raising its own interest rate for now, but it also has not denied the possibility that another interest rate hike might be necessary before the beginning of the year to continue to combat inflation. As a result, interest rates are likely to remain high for the foreseeable future.
Home Builder Sentiment Falls
These high mortgage interest rates also have home builders concerned about the future of the market. For a time, home builders were bullish on the housing market due to a relative lack of available inventory, which helped to drive prices up and keep up demand for new homes. However, as new houses have entered the market, mortgage prices have remained high, leading some to be discouraged that demand for new housing will continue to be there next year.
No Sign of Market Improvement in Near Future
Unfortunately, most of the factors that have led to current high interest rates show no sign of improving in the near future. Prices remain high, inventory remains low relative to demand, and the Federal Reserve is unlikely to reduce its own interest rate anytime soon. The question remains if demand will continue to be there for the market if interest rates continue to rise over the next few months.
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