Mortgage rates reach their highest rate in more than 20 YEARS – here’s what it means for new home buyers

Homebuyers are facing the highest mortgage rates since 2002 as experts warn that higher loans could pour cold water on the real estate market.

Data from government-backed lender Freddie Mac shows that a 30-year fixed-rate mortgage now hovers at 7.09 percent.

It comes after economists predicted interest rates could rise to more than 8 percent if the Federal Reserve decides to raise rates again next month.

Buyers now face taking out mortgages that cost $1,000 more per month than they would have had they bought two years ago.

Today, a family with a $400,000 home would have to pay $2,551 a month — assuming they put down a 5 percent down payment.

Over the course of their 30-year loan, they would pay $918,417 for the home — $538,417 of which represents interest alone.

However, if they bought in August 2021, they would only pay 1,576 a month for the same house. In total, they would pay $567,207 – $187,207 of which would be interest. At the time, rates were a more palatable 2.87 percent.

Mortgages are one of the hardest hit victims of the Federal Reserve’s relentless rate hikes.

The Fed has raised its fund rate 10 times over the past 15 months to curb red-hot inflation.

The rates on a 30-year fixed rate mortgage are not tied directly to the Fed rate, but to the yield on 10-year government bonds.

Such returns are affected by inflation, Fed actions and investor reaction.

Typically, the difference between the 30-year mortgage rate and the 10-year Treasury yield – known as the spread – fluctuates between 1.5 and 2 percentage points. For example, if the 10-year rate is 4 percent, the 30-year rate will be around 6 percent.

However, this ‘spread’ has widened radically to around 300 basis points.

Experts say these conditions are similar to those leading up to the financial crisis.

Rates have not increased more than 8 percent since 2000, according to data compiled by Freddie Mac

Cris deRitis, deputy chief economist at Moody’s Analytics, told MarketWatch, “Historically, mortgage interest rate spreads have only been around this level during periods of financial crisis like the Great Recession or the recession of the early 1980s.”

Rising costs of homeownership have left 82 percent of real estate buyers stuck in their current homes because they closed their deals when rates were low, Freddie Mac officials said last month.

As a result, they are hesitant to move because it would require them to switch to a mortgage with a higher interest rate.

One in seven homeowners who have no plans to sell their homes cite current low interest rates as the main reason for staying.

The number of new homes offered in June was then 20 percent lower than in the same period last year.

Meanwhile, data from the Mortgage Bankers Association revealed that the average loan amount on a purchase application fell to $423,500 – the lowest level since January 2023.