The average 30-year mortgage rate is now a full three...

The average 30-year mortgage rate is now a full three percentage points higher than it was last September. Credit: AP / Steven Senne

The average U.S. mortgage rate reached its highest level since November 2008 this week, hitting 5.89% and surpassing a previous high for the year set in June.

The rate for a 30-year fixed home loan is now a full three percentage points higher than it was in September 2021, when the average was 2.88% — close to its all-time low of 2.65% dating to 1971, according to mortgage giant Freddie Mac. The last time the average mortgage rate was higher than this week’s was November 2008 when it was 5.97%.

The cost of higher rates for Long Island homebuyers is substantial. A borrower financing their purchase with a 30-year, $500,000 mortgage would pay $887 more a month toward the principal and interest portions of the loan at the current average rate compared with last year’s average. That excludes tax and insurance costs.

Higher rates have helped reduce the number of sales and slow the Long Island housing market, but buyers have yet to see lower prices. The median home price matched a record in Nassau County in July at $720,000. In Suffolk, the median sale price set a record at $575,000.

The new peak in the average rate comes just weeks after it appeared mortgage rates were settling after a steep rise in the first half of the year. The average 30-year fixed rate dipped to 4.99% for the week ending Aug. 4 before turning upward again. Since that time, the yield on 10-year U.S. Treasury bonds, which typically moves in the same direction as mortgage rates, has climbed, hitting its highest level since mid-June this week. When bond prices fall, yields rise.

“There is a tug of war between sellers and buyers in the bond market. Sellers are worried about elevated inflation, while buyers are concerned about the economy,” said Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors. Therefore, "we see investors are more concerned about elevated inflation, pushing up the 10-year Treasury yield, as they ask for a higher return.” 

Is 6% coming?

The National Association of Realtors has projected the 30-year fixed rate will average 6% in the fourth quarter of the year and in 2023. Evangelou cited the Federal Reserve’s report this week, known as the Beige Book, which called the outlook for future economic growth “generally weak.” For now, fears of a recession could restrain mortgage rates.

“The big question is how high are mortgage rates going to increase,” Evangelou said. “Likely, not that high.”

Persistently high inflation has led investors to expect the Federal Reserve will raise its benchmark interest rate by three-quarters of a percentage point at its next meeting Sept. 20-21, which could increase borrowing costs for consumers and businesses.

But higher mortgage rates provide an opportunity for homebuyers willing to shop around, said Sam Khater, Freddie Mac’s chief economist. Freddie Mac said its research shows borrowers can save $1,500 over the term of their loan by seeking one additional quote and $3,000 if they get five quotes. 

“Mortgage rates rose again as markets continue to manage the prospect of more aggressive monetary policy due to elevated inflation,” Khater said in a statement. “Not only are mortgage rates rising but the dispersion of rates has increased, suggesting that borrowers can meaningfully benefit from shopping around for a better rate.”

Predictions vary on where mortgage rates are headed. Freddie Mac, which buys home loans from lenders on the secondary mortgage market, said in July it expected the average 30-year rate would be 5.4% in the fourth quarter, while Fannie Mae said last month it expects the mortgage rate to average 4.8% in the last three months of the year.

The uncertainty poses challenges for mortgage companies, and some might set higher rates to protect themselves from losses, said Andrew Russell, founder and owner of RCG Mortgage, a mortgage broker in Hauppauge.

“When it’s volatile, it’s very difficult, from a rate perspective, for mortgage companies to know what to offer to the consumer,” Russell said.

Russell noted the mortgage rate remains below its long-term average, which is about 7.8% since Freddie Mac started tracking rates in 1971. While changes in mortgage rates can scare away some potential homebuyers, Russell said he believed consumers are starting to become accustomed to rates between 5% and 6%.

“I think the sticker shock has set in,” Russell said. “A lot of clients are coming back to the market because they’ve swallowed that pill that this is what the new norm is.”

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