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The average rate for the popular 30-year fixed mortgage rate hit 8% Wednesday morning, according to Mortgage News Daily. This is the highest level since the mid-2000s.
The milestone came as bond yields reach levels not seen since 2007. Mortgage rates loosely track bond yields. US Treasury at 10 years.
Rates have risen sharply this week and last week as investors digest more information about the economy. On Wednesday, housing starts increased in September, but not as much as expected, according to the US Census.
Building permits, an indicator of future construction, declined but to a lesser extent than expected. Last week, retail sales were much higher than expected, creating more uncertainty about the Federal Reserve’s long-term plan.
These higher rates have led to a drop in demand for mortgages, with applications falling nearly 7% last week compared to the previous week, according to the Mortgage Bankers Association.
“Here’s another step that seemed extreme a few months ago,” said Matthew Graham, chief operating officer of Mortgage News Daily. “The fact is, many borrowers have already seen rates above 8%. That said, many borrowers are still seeing rates in the 7s due to buyouts and discount points.”
Home builders use buyouts to help customers purchase their homes. They do this through their mortgage subsidiaries.
While they used this financing tool very sparingly in the past, it is now the main incentive among builders, according to industry sources.
“While our mortgage company has been offering slightly below market rate loans for most of this cycle (just to be competitive), the full point buyout for the 30 year life of the loan we have recently described as an incentive to builders is not “This is something we had done in previous cycles, at least not on a broad, majority basis like we are doing today. You may have found it on some homes in the past on an extremely limited basis,” said a spokesperson for Dr. Hortonthe nation’s largest homebuilder.
The average 30-year rate was as low as 3% just two years ago. To put things in perspective, a buyer purchasing a $400,000 home with a 20% down payment would have a monthly payment today that is almost $1,000 more than they were two years ago.