Average long-term U.S. mortgage rate back above 7%

Washington — The average long-term U.S. mortgage rate returned to the 20-year highs of two weeks ago when rates breached 7% for the first time since 2002.

Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate rose to 7.08% from 6.95% last week. A year ago, the average rate was 2.98%.

The rate for a 15-year mortgage, popular with those refinancing their homes, climbed to 6.38% from 6.29% last week. It was 2.27% one year ago.

Last week, the Federal Reserve raised its short-term lending rate by another 0.75 percentage points, three times its usual margin, for a fourth time this year as part of its inflation-fighting strategy. Its key rate now stands in a range of 3.75% to 4%.

More increases are likely coming, though there is some hope that the Fed will dial them down as more evidence comes in that prices have peaked.

 Steve Probst, a branch manager at Fairway Independent Mortgage Corp. in Hauppauge, said some Long Island homebuyers are pausing their search while they wait to see if mortgage rates will move lower. A report Thursday on the national inflation rate moderating to 7.7% is a positive short-term sign, but more economic data will need to show the economy is slowing to see a long-term downward trend in rates, he said. 

"It's a euphoric feeling that the market is having right now thinking that the Fed is getting close to being done" hiking rates, Probst said. "That may or may not be true. We need a little more information still for that to be an accurate thought process."

Two weeks ago, the average long-term U.S. mortgage rate topped 7% for the first time in more than two decades, which combined with sky-high home prices, have crushed homebuyers’ purchasing power by adding hundreds of dollars to monthly mortgage payments.

Sales of existing homes have declined for eight straight months as borrowing costs have become too big of an obstacle for many Americans already paying more for food, gas and other necessities. Additionally, many homeowners seeking to upgrade or change locations have held off listing their homes because they don’t want to jump into a higher rate on their next mortgage.

The sagging housing market has prompted real estate companies to dial back their financial outlooks and shrink their workforces. Online real estate broker Redfin on Wednesday said it was cutting 862 employees and shutting down its instant-cash-offer subsidiary RedfinNow.

Redfin also laid off 470 employees in June, blaming slowing home sales. Through attrition and layoffs, Redfin has slashed more than a quarter of its workforce on the assumption that the housing downturn will last “at least through 2023,” it said in a regulatory filing.

While mortgage rates don’t necessarily mirror the Fed’s rate increases, they tend to track the yield on the 10-year Treasury note. The yield is influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.

With Jonathan LaMantia