Mortgage rates rocket to 16 year-high of 6.81% – the eighth consecutive increase in a row

Average interest rates on US home loans have reached their highest level since 2006 as the Federal Reserve’s rate hikes to fight inflation continue to raise borrowing costs for home buyers.

The average rate on a 30-year fixed-rate mortgage was 6.81 percent for the week ending Oct. 7, the eighth consecutive weekly increase, the Mortgage Bankers Association (MBA) said Wednesday.

Higher financing costs have led to a decline in the sales volume of homes. The MBA’s purchase index, which measures new mortgages to buy a home, fell 2 percent from the previous week and 39 percent from a year ago.

Mortgage rates have more than doubled since the start of the year as the Fed follows an aggressive path of rate hikes to curb stubbornly high inflation.

Higher borrowing costs have reduced home sales volume by 39% over the past year

The Fed’s actions, designed to cool the economy enough to contain rising prices, have weighed heavily on the rate-sensitive housing sector, as expectations of a Fed tightening have led to a rise in government bond yields.

Mortgage rates are closely following the yield on the 10-year Treasury, which has flirted with 4 percent in recent weeks.

The MBA’s Market Composite Index, a measure of all mortgage applications, including purchases and refinancing, fell 2 percent from a week earlier and is down about 69 percent from last year.

The MBA’s refinancing index fell 1.8 percent last week and is down 86 percent from a year ago as higher rates stifle demand for mortgage refinancing.

“Application volumes for both refinancing and home purchases declined and are further below last year’s record levels,” said Mike Fratantoni, MBA’s Senior Vice President and Chief Economist.

“The news that job and wage growth continued in September is positive for the housing market as higher incomes support housing demand,” he added.

“However, it also pushed out the possibility of the Federal Reserve’s potential near-term pivot on its plans for additional rate hikes.”

US housing market is cooling in the post-pandemic era, with the highest concentration in California and Florida

Expensive western locations that had seen their prices rise since the pandemic, such as San Diego and San Jose, helped round out the top 20 fastest-cooling cities, based on annual price changes from February to August 2022

Residential construction and sales have weakened significantly in recent months, with residential resale posting seven consecutive months of declines.

However, house prices remain high even as house price growth slows, eroding affordability for buyers who are still competing due to a shortage of real estate for sale.

A recent study of redfin found that the real estate market is cooling the fastest, especially along the West Coast, with Seattle showing the strongest slowdown.

Those same markets have long been among the most expensive in the country, allowing them to retreat further as higher mortgage costs discourage buyers,

Expensive western locations that had seen their prices rise since the pandemic, such as San Diego and San Jose, helped round out the top 20 fastest-cooling cities, based on annual price changes from February to August 2022.

Also in attendance were cities that emerged as home-buying hotspots during the pandemic, such as Phoenix, Las Vegas and Dallas, whose markets have cooled rapidly as the recently-emerged rise of remote working continues to recede.

New York City’s real estate crisis may not just be limited to office buildings as apartment sales fell by double digits in the third quarter

Manhattan’s housing market is also one of the most impacted markets, with revenues dropping 18 percent in the third fiscal quarter, the first decline in sales since 2020, according to Miller Samuel and Douglas Elliman.

Despite the drop in sales, prices remain extremely high in Manhattan as the average apartment price has risen 4 percent to $1.96 million. However, experts say those price increases are also slowing.

The last time apartment sales in the borough fell was the fourth quarter of 2020, still well in the pandemic, when sales fell 21 percent.

Miller Samuel CEO Jonathan Miller told CNBC that “the Manhattan boom has been interrupted.”

The biggest declines have come from some of the most expensive properties, with antebellum apartments along Park and Fifth Avenue, as well as Central Park West, going unsold for months, even years.

Miller said, “Between the volatility in the financial markets and rising interest rates, we see the higher end disappointing.”