Mortgage rates rose above 7 percent for the first time in more than 20 years, as the American housing market continues to decline.Prior to March of this year, home-borrowing rates were on the way down after a 40-year low, before the Federal Reserve started to increase interest rates to combat out of control inflation.
The last two decades of low interest-rate policies had encouraged growth in the mortgage market, which, excepting the housing crisis in 2007–08, boosted the rate of U.S. homeownership.
This a massive jump from a year ago, when it stood at 3.14 percent.
The surge in monthly home loan rates, due to the additional interest that buyers are now paying at higher rates, have pushed the market into a downturn.
"As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month," said Sam Khater, chief economist at Freddie Mac.
"In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward," said Khater.
Existing home sales have declined for eight straight months, as high borrowing costs force many Americans to put off buying, due to the rising price of food, gas, and other necessities.
The Housing Market StrugglesAlthough total housing stock is slowly increasing, it has not fully recovered from the massive buying spree during the pandemic.
Some homeowners have also held off putting their homes on the market in order to avoid paying a higher rate on their next mortgage.
These factors have not assisted in raising the housing supply, which has also been affected by a downturn in the homebuilding industry.
Homebuilders are being discouraged by rising operational costs, lingering supply shortages, and low buyer volume.
During the pandemic, housing prices rose roughly 40 percent, according to Freddie Mac, as high prices pushed many buyers out of the market while driving up overall inflation.
However, despite fewer buyers and a decline in month-to-month prices, the jump in mortgage rates has actually offset the lower cost to purchase a new home.
He said that a massive spike of that size "would be another big shock to the housing market."
The Fed is deliberately attempting to slow down the job and housing market as it tries to cool the economy to curb inflation.
At the last meeting of the Federal Open Market Committee in September, members of the Fed board projected that interest rates will roughly reach 4.5 percent by early next year, in order for inflation to hit its peak.
The next policy meeting is expected to announce another rate increase of 75 basis points when it next meets on Nov. 1–2.
"This should come as no shock to the average person. I note that the smartest people in the world, our 'betters' who live these issues, have said prices would still go up along with demand. They are wrong," Nicozisis added.