This week will surely go in the books for mortgages, as the average interest rate on a typical 30-year mortgage surpassed 7% this week, which is the highest level since 2001. The Mortgage Bankers Association said that mortgage rates rose from 6.94% last week to 7.16% this week. From 6.09% last week, The average rate on a 15-year fixed-rate mortgage grew to 6.39%.

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By spooking buyers with higher borrowing costs and prompting new home builders to scale back their plans, the spike in mortgage rates is cooling the housing market. And because homeowners don’t want to give up mortgages they financed when rates were much lower, some of them are holding off on listing their properties.

In a statement, Zillow Senior Economist Nicole Bachaud said: “As the ability to afford a new mortgage diminishes, buyers are forced to step back, and potential sellers are faced with the trade-off of letting go of their affordable monthly payments and low rates becoming less favorable, meaning overall inventory and sales will suffer.”

Very real costs for homebuyers is the aftermath of the higher rates. For example, let’s say you take a home that sells for the U.S. median price of $384,800 and that is purchased with a 20% down payment. A homebuyer would pay roughly $750 more per month, at the current mortgage rate of 7.16%, than with a loan at 3.2%, the rate in early 2022, said CBS News.

Deputy chief economist at the Mortgage Bankers Association, Joel Kan has noted that the jump in borrowing costs is discouraging Americans from applying for mortgages and refinancing.

For the eighth month in a row, sales of previously occupied U.S. homes fell in September, and they matched the pre-pandemic sales pace from a decade ago. But as the Federal Reserve continues lifting its benchmark interest rate to curb inflation, some economists think mortgage costs are likely to keep climbing.

Mortgage rates are not directly being set by the Fed, but loan costs typically move in concert with the federal funds rate. It is expected by Wall Street analysts that the Fed will hike rates twice more by year-end. Lawrence Yun, the National Association of Realtors Chief Economist, said to a group of real estate investors that “mortgage rates could reach 8.5% “which would be another big shock to the housing market.” But other analysts predict mortgage rates could hit double digits.

Rising mortgage costs could at least add to the number of properties on the market as well as knock back prices, as for the people in the market for a home. According to Freddie Mac, during the pandemic, housing prices rose roughly 40%, but the picture next year is likely to be different.

In a recent report, the lender said that “as the labor market cools off, housing demand will remain weak in 2023, potentially resulting in declines in prices next year.” “However, home price forecast uncertainty is wide due to interest rate volatility and the potential of a recession on the horizon,” the lender added.

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