Skyrocketing U.S. Mortgage rates* Facts:
1) 30-year mortgage rate hit 7.08% for the first time in 20 years. 7 weeks ago it was under 6%. A year ago it was a little higher than 3%.
2) In September existing-home sales dropped by 24% compared to the previous year. New-home sales decreased by 18%.
3) Home prices fell by 1.1% in August from July.
Analysis:
1) The mortgage rates rise is explained by Fed’s interest rate increases aimed to fight inflation: as commercial banks now borrow money at higher costs, they escalate their returns.
2) Significantly higher mortgage rates led to a decrease in demand for houses and hence to a drop in their prices.
3) Regardless, the rates’ rise offsets the effect of the price decline, so the purchasing costs are still soaring. According to “Realtor. com”, a buyer who makes a downpayment* of 20% on an average-priced house would pay $2300/month. A year ago that would be $1300.
4) To conclude, people sell houses at lower prices, but the buyers taking a mortgage face higher costs.
Inspired by WSJ
