(NewsGlobal.com)- According to data released on Wednesday by the Mortgage Bankers Association (MBA), the average interest rate on the most common home loan in the United States increased to its highest level since 2001 as tighter financial circumstances put pressure on the housing market.
For the week ending October 21, the average contract rate for a 30-year fixed-rate mortgage increased by 22 basis points to 7.16%, while the MBA’s Market Composite Index—a gauge of the volume of home loan applications—fell 1.7% from the previous week. The number of mortgage applications has been declining at its lowest rate since 1997.
Since the beginning of the year, mortgage rates have more than doubled due to the Federal Reserve’s aggressive program of interest rate increases to combat persistently high inflation.
Following its upcoming policy meeting on November 1-2, the central bank is anticipated to increase rates by 75 basis points for a fourth consecutive time.
These measures, intended to reduce price pressures by sufficiently cooling the economy, have significantly impacted the interest-rate-sensitive housing market as rising Treasury rates reflect expectations for Fed tightening.
The benchmark for mortgage rates is the yield on the 10-year note.
An influential expert on the US housing market warned on Wednesday that prospective homeowners are unlikely to get any relief from rising mortgage rates in the near future.
This year, the average interest rate on a 30-year mortgage more than doubled, and it recently surpassed 7% for the first time in twenty years. However, after Federal Reserve Chair Jerome Powell said the central bank isn’t done raising interest rates, mortgages are likely to increase even further in the coming months.
According to Lawrence Yun, chief economist for the National Association of Realtors, the mortgage market “has already priced in the current Fed move” to raise its benchmark rate by 0.75% for a fourth consecutive month. However, persistent inflation means that skyrocketing mortgage rates will remain unaffordable.
Still, Yun added in a statement, “mortgage rates are at or near 20-year highs, and that harms homebuyers.”
He says once inflation is under control, mortgage rates will begin to decline. Before that occurs, another year or two may pass.