A home for sale on Oak Street in Patchogue in May...

A home for sale on Oak Street in Patchogue in May 17. Credit: Newsday/Steve Pfost

The average 30-year fixed mortgage rate rose for the fifth straight week to 6.29%, surging by more than a quarter-point to the highest it has been since October 2008, according to mortgage giant Freddie Mac.

The average surpassed 6% for the first time in more than a decade last week, when it was 6.02%. Just a year ago, the average stood at 2.88%. The rise of more than three percentage  points in the key interest rate for homebuyers has made buying a home on Long Island drastically more expensive and has not been offset by declines in local home prices.

"I don't think anybody in the industry was expecting it to go [up] this fast," said Steve Probst, branch manager at Fairway Independent Mortgage Corp. in Hauppauge. "It's definitely had a major impact on the real estate industry right now. It's definitely slowed down a lot."

Higher mortgage rates limit buying power by reducing the prices at which consumers can purchase while still qualifying for a home loan. For some buyers, a higher interest rate could mean their income is no longer sufficient to receive financing. For sellers who bought or refinanced while fixed mortgage rates were around 3%, the doubling of the average mortgage rate serves as a disincentive from listing their homes.

 A homebuyer using a $500,000 mortgage to finance their purchase would pay $3,091 toward the princpal and interest portions of their loan with a rate of 6.29%. At last year's rate of 2.88%, the homebuyer's monthly payment would be $1,016 lower , according to Bankrate.com's mortgage calculator. That excludes taxes and insurance which vary by property and community. 

The Federal Reserve raised its benchmark interest rate Wednesday by three-quarters of a percentage point in its latest aggressive move to combat inflation. While the increase doesn’t directly affect mortgage rates — the Fed rate has a greater influence on short-term debt, such as credit cards and auto loans — local experts said it can have indirect effects on homebuying by raising the cost to borrow money for consumers and businesses.

Mortgage rates typically move in the same direction as the 10-year U.S. Treasury yield, the return investors get from buying government bonds. The yield reached its highest point since 2011 on Thursday, signaling investors are demanding a greater return for holding government debt. Bond yields rise when prices fall.

 The average 30-year fixed rate since 1971 is about 7.8%, according to Freddie Mac. 

“The housing market continues to face headwinds as mortgage rates increase again this week, following the 10-year Treasury yield’s jump to its highest level since 2011,” Sam Khater, Freddie Mac’s chief economist said in a statement. “Impacted by higher rates, house prices are softening, and home sales have decreased. However, the number of homes for sale remains well below normal levels.”

The national median home price jumped 7.7% in August from a year earlier to $389,500, according to the National Association of Realtors. As the housing market has cooled, home prices have been rising at a more moderate pace after surging annually by around 20% earlier this year. Before the pandemic, the median home price was rising about 5% a year.

Long Island home prices have also been increasing at a more moderate pace. The number of home sales that closed on Long Island fell about 13% in August compared with the previous year but prices, while increasing more slowly, remained close to record highs. The median sale price in Nassau County was $700,000 last month, or 4.5% higher than in August 2021, but down from a high of $720,000 recorded in June and July. In Suffolk, the median was $565,000, or 6.6% higher than August 2021, and just below a record $575,000 that was reached in July. 

Fewer new listings hit the market in August than at the same time in 2021, a sign that higher mortgage rates could make it harder to resolve the Island’s shortage of homes for sale.

 “Owners may be locked into their existing homes as mortgage rates rise, and the 3% rates from last year may not be back anytime soon,” Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors, wrote in commentary published Thursday.

While higher rates have slowed the market, Probst, of Fairway Independent Mortgage, said he feels confident that homeowners have greater financial strength and equity in their homes than during the housing crash of 2008. 

"Personal home balance sheets were horrible [then]. People were leveraging all kinds of purchases and buying everything on credit," Probst said. "You don't really have that now. People have money in the bank, they have equity in their homes. Things are a lot better than it was back then." 

With Associated Press

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