Average mortgage rates jumped another 10 bps last week, edging closer to 8%.
Officials at Freddie Mac reported Thursday that the 30-year fixed-rate mortgage averaged 7.79%, up from 7.63%. A year ago at this time, the 30-year FRM averaged 7.08%.
The 15-year fixed-rate rose to 7.03% from 6.92%. A year ago, it averaged 6.36%.
“For the seventh week in a row, mortgage rates continued to climb toward eight percent, resulting in the longest consecutive rise since the Spring of 2022,” said Sam Khater, Freddie Mac’s Chief Economist.
“Rates have risen two full percentage points in 2023 alone and as we head into Halloween, the impacts may scare potential homebuyers. Purchase activity has slowed to a virtual standstill, affordability remains a significant hurdle for many and the only way to address it is lower rates and greater inventory.”
Rates have risen nearly 70 bps in the last seven weeks, partly driven by Treasury yield volatility. Yields breached 5% for the first time since 2007 last Thursday, though they have since pulled back to the mid 4%s. At the same time, investors are still digesting comments from Federal Reserve Chair Jerome Powell suggesting stubborn inflation will keep rates high for a while yet.
“While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2%,” Powell said in remarks.
All of this chaos has created a gloomy atmosphere among consumers.
Both buyers and potential sellers are terrified of the worsening market and its impact on their future finances. Nearly 70% of Americans believe the country is headed for a housing crash. One in five Millennials think they’ll never be able to afford a home.
New inventory is necessary to stem rising housing costs until mortgage rates come down. But builders are struggling to produce homes at the break-neck pace required.
Construction costs like buying lots and materials have soared due to rate hikes and inflation. A report from Bank of America Global Research characterized changes in construction costs as rising “at an unprecedented pace.” Material prices are up 45% from 2018.
“Commercial construction materials prices are now 40% higher than they were back in February 2020. When you think about materials availability, it’s become dire,” Maria Davidson, CEO and Founder of Kojo, a materials management company, told CNBC.
“That’s made it very difficult for contractors all over the country to get the materials they need and be able to install them on time and keep projects on budget.”
Plus, builders don’t have enough workers to accommodate record-high demand. The industry is short about 650,000 workers. In busy markets like Texas and Minnesota, construction workers’ pay rose more than 10% between 2022 and 2023 as companies hoped to attract and retain laborers.
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