Mortgage rates have surged higher this week as markets digest more aggressive interest-rate hikes from the Federal Reserve, and with the average 30-year fixed mortgage rate hitting its highest level since 2008, experts warn that warning signs in the housing market could spell trouble for the broader economy.
The average interest rate on the popular 30-year fixed mortgage home loan now sits at over 6.2%, its highest level since the 2008 financial crisis and up from around 5.5% a week ago.
Existing home sales and mortgage applications have both taken a hit amid rising interest rates and looming recession fears as the median monthly payment on a new 30-year mortgage rose more than 50% since last year, according to strategists at Goldman Sachs.
Today’s housing bubble is the “Achilles Heel” that could “put a torpedo into the side of the U.S. economy,” especially as metrics such as home builder confidence and traffic of prospective buyers continue to plunge, predicts James Stack, president of InvesTech Research and Stack Financial Management.
New data on Wednesday from the National Association of Home Builders showed that home builder confidence declined for a six months in a row, falling to its lowest level in two years as surging inflation and high mortgage rates price buyers out of the market.
Traffic of prospective buyers, meanwhile, also hit its lowest level since June 2020, with new buyers hard-hit by “declines for housing affordability,” according to NAHB chairman Jerry Konter.
What’s more, home purchase applications are down 15% from last year as record-low housing stock, rising prices and the run-up in interest rates impact demand, according to data from the Mortgage Bankers Association on Wednesday.
“We’ve already seen mortgage applications falling in double digits year over year, and existing home sales are likely to follow suit over the next several months,” says Ruben Gonzalez, chief economist at Keller Williams. “Mortgage rates going forward will continue to be responsive to changes in expectations around the Fed’s policy path, as well as inflation expectations,” he predicts.
With the Federal Reserve scrambling to aggressively raise interest rates in a bid to combat inflation—implementing another 75-basis-point increase on Wednesday, home buying has become notably more expensive. “The current red-hot housing market will cool off, and some house price declines are likely,” says Moody’s chief economist Mark Zandi. Additional increases in mortgage rates will only “amplify downside risk” for the housing market, which could have significant implications for the rest of the economy, according to Goldman strategists.