Jeff Ostrowski | Bankrate.com (TNS)

The average rate on 30-year fixed mortgages remained at generational highs this week, climbing to 8.01%, up from 7.99% the previous week, according to Bankrate’s weekly national survey of large lenders.

The average rate on 30-year home loans hit its highest point since August 2000, according to Bankrate research. That was before the Sept. 11 terror attacks led the Federal Reserve to slash interest rates, and well before the Great Recession spurred the Fed to keep rates low throughout the 2010s.

The current run-up in mortgage rates reflects a variety of factors: a resilient U.S. economy, the Fed’s ongoing war on inflation and, more recently, a sharp rise in 10-year Treasury yields, which serve as an informal benchmark for 30-year mortgage rates. The 8% barrier stands as just one more unwelcome milestone in the upward trajectory of borrowing costs.

“We’ve seen a tremendous run-up in rates,” says Tom Wind, head of Consumer Lending at U.S. Bank. “It’s kind of a shock.”

What happened to mortgage rates this week

The 30-year fixed mortgages in this week’s survey had an average total of 0.33 discount and origination points.

Over the past 52 weeks, the benchmark 30-year fixed-rate mortgage has averaged 6.89%. A year ago, the 30-year fixed-rate mortgage was 7.12%. Four weeks ago, that rate was 7.55%. The 30-year fixed-rate average for this week is 1.74 percentage points higher than the 52-week low of 6.27%.

As for other loans:

—The 15-year fixed-rate mortgage was 7.23%, up from 7.19 from a week ago.

—The 5/6 adjustable-rate mortgage (ARM) was 7.38%, down from 7.39% a week ago.

—The 30-year fixed-rate jumbo mortgage was 7.72%, unchanged from a week ago.

How mortgage rates affect home affordability

The national median family income for 2023 is $96,300, according to the U.S. Department of Housing and Urban Development, and the median price of an existing home sold in September 2023 was $394,300, according to the National Association of Realtors. Based on a 20 percent down payment and a mortgage rate of 7.99%, the monthly payment of $2,317 amounts to 29% of the typical family’s monthly income.

The sharp rise in mortgage rates has squeezed affordability and sparked a slowdown in home sales. First-time buyers are especially challenged by this market. Home prices haven’t fallen significantly, and values are unlikely to decline, given the shortage of homes for sale.

“Higher mortgage rates have a dual impact on the housing market: reducing affordability for buyers and strengthening the rate lock-in for sellers,” says Odeta Kushi, deputy chief economist at First American. “The combination of reduced affordability and increased strength of the rate lock-in effect is likely to continue to suppress home sales because you can’t buy what’s not for sale, even if you can afford it.”

Will mortgage rates go down?

The sharp run-up in rates has caught the housing industry by surprise. The Mortgage Bankers Association forecasts the 30-year fixed rate to fall to 7.2% by the end of the year — a prediction that’s nearly a full percentage point above its forecast from last month.

“The Fed’s hiking cycle is likely nearing an end, but while Fed officials have indicated that additional rate hikes might not be needed, rate cuts may not come as soon or proceed as rapidly as previously expected,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, said last week during the group’s annual conference.

Economists expected to see mortgage rates decrease by the end of 2023, but the strength of the U.S. economy has thrown a wrinkle into those predictions. So has the jump in 10-year Treasury yields.

Many in the industry expect rates to peak at 8%. “I think they’ll touch the 8% level, and then they’ll come back down,” says Vishal Garg, CEO of lender Better.com.

Mortgage rates are also chained to inflation, a metric the Fed has been moving to control. At its September meeting, the central bank opted to keep rates unchanged. While the Fed doesn’t directly set fixed mortgage rates, it does set the tone of the interest-rate environment — and as the central bank has boosted its policy rate from zero in early 2022 to a range of 5.25% to 5.5% now, mortgage rates have followed suit.

Methodology

The Bankrate.com national survey of large lenders is conducted weekly. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison. Our rates differ from other national surveys, in particular Freddie Mac’s weekly published rates. Each week Freddie Mac surveys lenders on the rates and points based on first-lien prime conventional conforming home purchase mortgages with a loan-to-value of 80%. “Lenders surveyed each week are a mix of lender types — thrifts, credit unions, commercial banks and mortgage lending companies — is roughly proportional to the level of mortgage business that each type commands nationwide,” according to Freddie Mac.

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