Long Island homebuyers are facing the highest long-term mortgage rates since 2007 after the average 30-year fixed rate rose for a sixth straight week to 6.7% on Thursday, according to mortgage giant Freddie Mac.
The average increased almost a half-point compared with the previous week and by a full point in the past month. A year ago, it was 3.01%.
The steep run-up in rates translates into much higher potential monthly payments for Long Island buyers. A buyer using a $500,000 mortgage to finance their purchase with a rate of 6.7% would pay $3,226 to cover the principal and interest portions of the loan, not including tax and insurance costs. In the past year, that portion of the payment has increased about 53% compared with the $2,110 payment for principal and interest buyers would have with the rate at 3.01%.
The rise in rates has forced buyers to change their expectations of how much house they can afford, said Bryan Karp, an associate broker and team leader at Coach Realtors in Smithtown.
"Buyers are now [saying], 'I was able to get something at $600,000, which gave me a brand-new kitchen. I still want to buy, so now I've got to grab something at $400,000,'" Karp said. "It doesn't have the kitchen, the pool or the extra bedroom. Buyers are having to change their standard."
For sellers, pricing a house properly is critical to ensuring it finds a buyer, Karp said. The shortage of listings has helped prop up prices.
Higher rates are "just taking the wind out of the sails but not as much as you would think," Karp said.
Last week, the Federal Reserve bumped its benchmark borrowing rate by another three-quarters of a point in an effort to constrain the economy, its fifth increase this year and third consecutive 0.75 percentage point increase.
Perhaps nowhere else is the effect of the Fed’s action more apparent than the housing sector. Existing home sales have been in decline for seven straight months as the rising cost to borrow money puts homes out of reach for more people.
On Long Island, the number of home sales that closed in August fell about 13% compared with the same month in the previous year, according to OneKey MLS. The number of listings still hasn't recovered after the pandemic supercharged demand and depleted the number of homes for sale to an all-time low in January 2022. Homes for sale then increased six months in a row before falling in August to 6,760, which is about half as many as there were in August 2019.
The shortage has helped keep prices near record highs. The median sale in August went for $700,000 in Nassau County and $565,000 in Suffolk County. However, buyers that closed in August could have reached deals earlier in the summer or in the spring, when rates were lower.
The government reported Thursday that the U.S. economy, battered by surging consumer prices and rising interest rates, shrank at a 0.6% annual rate from April through June. That was unchanged from the previous estimate for the second quarter.
Fed officials forecast that they will further raise their benchmark rate to roughly 4.4% by year’s end, a full point higher than they envisioned as recently as June. And they expect to raise the rate again next year, to about 4.6%. That would be the highest level since 2007.
Mortgage rates don’t necessarily mirror the Fed’s rate increases, but tend to track the yield on the 10-year Treasury note. That’s influenced by a variety of factors, including investors’ expectations for future inflation and global demand for U.S. Treasurys.