Average U.S. mortgage rate tops 6% for first time since 2008
Average mortgage rates topped 6%, data released Thursday show. Credit: Getty Images/Livingpix
The average 30-year fixed mortgage rate this week eclipsed 6% for the first time since November 2008, with the rate more than doubling in the past year to 6.02%, according to mortgage giant Freddie Mac.
A year ago, the average was 2.86%. Since then, soaring inflation and the Federal Reserve’s attempts to restrain prices by increasing the cost of borrowing for businesses and consumers have pushed mortgage rates to their highest point in 14 years.
U.S. consumer prices increased 8.3% in August compared with a year earlier, while the New York metropolitan region, which includes Long Island, saw a 6.6% increase in prices, the Bureau of Labor Statistics reported earlier this week.
Higher rates have led fewer borrowers to seek out home loans. Applications for mortgages to purchase homes were down 29% this week compared with the same week a year ago, and applications to refinance mortgages are 83% lower than at this time last year, according to data published Wednesday by the Mortgage Bankers Association.
“Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate,” Sam Khater, Freddie Mac’s chief economist said in a statement. “This indicates that while home price declines will likely continue, they should not be large.”
That trend is playing out on Long Island. Higher rates typically shrink the pool of buyers because monthly payments become too expensive for some borrowers.
For example, a homebuyer taking out a 30-year, $500,000 mortgage would pay $934 more a month toward the principal and interest portion of their loan with the rate at 6.02% compared with the rate a year ago of 2.86%. That excludes property tax and insurance costs. Individuals can also see different rates depending on their credit score and size of their down payment.
A rapid rise in rates can shake buyer confidence and lead some to postpone their search, said Jared Garcia, a real estate agent at Weichert Realtors in Farmingdale. He noticed a large drop in activity back in June when rates rose as high as 5.81%. The average 30-year fixed mortgage rate then receded to 4.99% by early August before increasing by a full point in the past six weeks.
“Mortgage rates, historically, they trickle up, they trickle down in small increments," Garcia said. "However, this time around, they shot up pretty drastically.”
The effect of higher interest rates has been slow to affect prices. Home prices on Long Island in August were lower than the record highs set a month earlier but still showed appreciation compared with 2021. The median sale price in Nassau County last month was $700,000, or 4.5% higher than in August 2021, and in Suffolk County the median was 6.6% higher than a year ago, at $565,000.
Fewer buyers making offers can be a positive for the buyers still in the market. For example, it provides better chances for buyers who are putting less than 20% down to have their offers accepted, which has been difficult during the pandemic, when sellers have typically had multiple offers to choose from, Garcia said. Buyers also might have a better chance of negotiating after a home inspection to get sellers to pay for repairs — another pandemic-era rarity.
But the number of homes for sale on Long Island continues to fall short of buyers' needs. There were 5.6% fewer listings available at the end of August, 6,760, than there were a year ago.
That’s because a sizable number of transactions this summer consumed existing inventory and new listings didn't make up for the difference.
The number of new listings that were added last month to OneKey MLS, the local multiple listing service, fell 4.7% in Nassau County to 2,020 compared with August 2021. In Suffolk County, new listings dropped by 9.8% to 2,252 compared with the same month a year ago. After hitting a record low in January, the region's inventory of homes for sale had grown for six straight months before declining in August, according to OneKey MLS.
The rise in mortgage rates has had a "lock-in effect" on some sellers who either bought their home or refinanced in the past few years, when rates were historically low, said Odeta Kushi, deputy chief economist at First American Financial Corp., a provider of title insurance and settlement services.
“Why would you as an existing homeowner, sell your home in the current environment when you locked into a 3% mortgage rate or even lower than that?” Kushi said. “You don't really have a financial incentive to sell your home and purchase a home at a higher mortgage rate, so you're sitting tight.”
The average 30-year fixed mortgage rate this week eclipsed 6% for the first time since November 2008, with the rate more than doubling in the past year to 6.02%, according to mortgage giant Freddie Mac.
A year ago, the average was 2.86%. Since then, soaring inflation and the Federal Reserve’s attempts to restrain prices by increasing the cost of borrowing for businesses and consumers have pushed mortgage rates to their highest point in 14 years.
U.S. consumer prices increased 8.3% in August compared with a year earlier, while the New York metropolitan region, which includes Long Island, saw a 6.6% increase in prices, the Bureau of Labor Statistics reported earlier this week.
Higher rates have led fewer borrowers to seek out home loans. Applications for mortgages to purchase homes were down 29% this week compared with the same week a year ago, and applications to refinance mortgages are 83% lower than at this time last year, according to data published Wednesday by the Mortgage Bankers Association.
“Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate,” Sam Khater, Freddie Mac’s chief economist said in a statement. “This indicates that while home price declines will likely continue, they should not be large.”
That trend is playing out on Long Island. Higher rates typically shrink the pool of buyers because monthly payments become too expensive for some borrowers.
For example, a homebuyer taking out a 30-year, $500,000 mortgage would pay $934 more a month toward the principal and interest portion of their loan with the rate at 6.02% compared with the rate a year ago of 2.86%. That excludes property tax and insurance costs. Individuals can also see different rates depending on their credit score and size of their down payment.
A rapid rise in rates can shake buyer confidence and lead some to postpone their search, said Jared Garcia, a real estate agent at Weichert Realtors in Farmingdale. He noticed a large drop in activity back in June when rates rose as high as 5.81%. The average 30-year fixed mortgage rate then receded to 4.99% by early August before increasing by a full point in the past six weeks.
“Mortgage rates, historically, they trickle up, they trickle down in small increments," Garcia said. "However, this time around, they shot up pretty drastically.”
The effect of higher interest rates has been slow to affect prices. Home prices on Long Island in August were lower than the record highs set a month earlier but still showed appreciation compared with 2021. The median sale price in Nassau County last month was $700,000, or 4.5% higher than in August 2021, and in Suffolk County the median was 6.6% higher than a year ago, at $565,000.
Fewer buyers making offers can be a positive for the buyers still in the market. For example, it provides better chances for buyers who are putting less than 20% down to have their offers accepted, which has been difficult during the pandemic, when sellers have typically had multiple offers to choose from, Garcia said. Buyers also might have a better chance of negotiating after a home inspection to get sellers to pay for repairs — another pandemic-era rarity.
But the number of homes for sale on Long Island continues to fall short of buyers' needs. There were 5.6% fewer listings available at the end of August, 6,760, than there were a year ago.
That’s because a sizable number of transactions this summer consumed existing inventory and new listings didn't make up for the difference.
The number of new listings that were added last month to OneKey MLS, the local multiple listing service, fell 4.7% in Nassau County to 2,020 compared with August 2021. In Suffolk County, new listings dropped by 9.8% to 2,252 compared with the same month a year ago. After hitting a record low in January, the region's inventory of homes for sale had grown for six straight months before declining in August, according to OneKey MLS.
The rise in mortgage rates has had a "lock-in effect" on some sellers who either bought their home or refinanced in the past few years, when rates were historically low, said Odeta Kushi, deputy chief economist at First American Financial Corp., a provider of title insurance and settlement services.
“Why would you as an existing homeowner, sell your home in the current environment when you locked into a 3% mortgage rate or even lower than that?” Kushi said. “You don't really have a financial incentive to sell your home and purchase a home at a higher mortgage rate, so you're sitting tight.”
Jonathan LaMantia covers residential real estate and other business news on Long Island. He previously covered the business of health care for Crain's New York Business.
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