U.S. mortgage rates surged the most in more than 36 years this week, data from Freddie Mac indicated Thursday, as house buying costs continue to track the Federal Reserve’s interest rate path amid the ongoing surge in domestic inflation.
Freddie Mac, the biggest individual mortgage loan buyer in the country, said 30-year fixed mortgage rates surged to 5.78%, a half-point increase from last week and the biggest increase since 1987. The headline rate, Freddie Mac said, is the highest since the November 2008 housing crisis.
The surge follows the Fed’s decision to hike its benchmark Fed Funds rate by three quarters of a percent — the biggest single day move since 1994 — to a range of 1.25% to 1.5%, amid the fastest domestic inflation in more than four decades.
Fed Chairman Jerome Powell also said there were more hikes to follow, with rate traders now betting on Fed Funds rate of between 3.5% and 3.75% by the end of the year.
The higher borrowing costs are likely to slow new and existing home buyers, and by extension tame some of the heat found in the broader housing market, although a lack of new inventory and a slump in new permits is keeping prices elevated.
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“The supply of finished homes — the inventory of finished homes that are for sale is incredibly low –historically low,” Fed Chairman Jerome Powell told reporters in Washington yesterday, adding he and his colleagues are watching home prices “very carefully”.
“I would say if you’re a home buyer, you need a bit of a reset. We need to get back to a place where supply and demand are back together, and where inflation is down low again, and mortgages are low again.”
May housing starts fell 14.4% to an annual rate of 1.549 million, the Commerce Department reported Thursday, well shy of the Street consensus forecast of 1.701 million and the lowest in more than two years.
Permits for new construction were also down 7% to a weaker-than-expected pace of 1.695 million.
Real estate broker Redfin Corp. (RDFN) – Get Redfin Corporation Report, said earlier this week it would layoff around 8% of its workforce and cautioned that the group could be facing “years, not months, of fewer home sales.”
“With May (homebuying) demand 17% below expectations, we don’t have enough work for our agents and support staff, and fewer sales leave us with less money for headquarters projects,” CEO Glenn Kelman wrote in a blog.
Source: https://www.thestreet.com/markets/mortgage-rates-surge-the-most-in-35-years-as-fed-hits-home-buyers?puc=yahoo&cm_ven=YAHOO&yptr=yahoo