Mortgage rates in the US have hit their highest level since 2008, with the popular 30-year fixed rate loan now topping 6 per cent.
According to the Financial Times, the average 30-year fixed-rate mortgage rose to 6.02 per cent – up from 5.89 per cent a week ago and 2.86 per cent in the same week last year.
The benchmark has nearly doubled since January in the steepest and fastest increase in interest rates in more than 50 years.
Ahead of this week’s FOMC meeting, lenders have been quick to raise mortgage rates as the US Federal Reserve continues to battle the highest level of inflation in the US in decades.
Futures markets predict the Fed will raise rates by 0.75 percentage points for the third consecutive time this week, meaning more pain ahead for borrowers.
Meanwhile some experts believe the Fed could hike rates by as 1 per cent, following the most recent CPI reading that saw inflation creep up more than expected at 8.3 per cent.
In an effort to cool rampant inflation, the central bank has raised the federal funds rate four times this year.
It started with a 25-basis point increase in March, followed by a 50-basis point increase in May and back-to-back 75-basis point hikes in June and July.
The sudden spike in rates this year has made homes less affordable and cooled sales.
While prices have begun to moderate, they still remain at historically high levels.
The most recent Standard & Poor’s Case-Shiller home price index showed prices up 18 per cent annually in June, down from 19.9 per cent the previous month.
Home sales fell in July for the sixth month in a row, while housing starts, a measure of new home construction, also sank that month.
Chief economist at Freddie Mac, Sam Khater said tight supply is the main factor holding up home prices as interest rates rise.
“Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate,” Mr Khater told the Financial Times.
“While home price declines will probably continue, they should not be large.”
According to the National Association of Realtors, existing home sales in July fell 5.9 per cent compared with the previous month and are down 20 per cent compared to last year.
NAR said the median price was up 10.8 per cent from a year ago, to $403,800, but down $10,000 from an all-time high in June.
Meanwhile, new mortgage applications dropped 1.2 per cent over the week, driven by a decline in refinance applications which have fallen by more than 80 per cent over the past year.
Applications for new homes were unchanged for the prior week and down 29 per cent from the same time last year