Highest Mortgage Rates In Over 20 Years Challenge MI Homebuyers

MICHIGAN — The highest mortgage rate in more than 20 years is pushing up borrowing costs for Michigan homebuyers who are already challenged by a competitive housing market.

Mortgage buyer Freddie Mac said Thursday the average rate in a 30-year fixed rate mortgage rose to 7.09 percent this week, up from 6.96 percent last week and 5.13 percent a year ago.

Higher interest rates can add hundreds of dollars a month to mortgage payments. With housing costs already high, the increase could put home buying out of reach for many Americans, analysts say.

Home prices soared to all-time highs in 60 percent of U.S. markets in June, according to a report from the real estate technology company Black Knight. In Michigan, home sale prices were up 3 percent from the 2022 peak.

A recent Redfin report showed the housing market in the Metro Detroit area was holding up relatively well under high mortgage rates and other uncertainties.

Mortgage rates haven’t been this high since April 2002, when the rate averaged 7.13 percent.

Lisa Sturtevant, chief economist for Bright MLS, told The Associated Press that crossing the 7 percent mortgage rate threshold “could be what sets in motion a major contraction in the housing market this fall.”

The rate increases follow a sharp uptick to more than 4 percent this month in the 10-year Treasury yield, a benchmark lenders use to price rates on mortgages and other loans. The Treasury yield is close to where it was in 2007, and is at its highest level since October.

The yield has been rising as bond traders react to more reports showing the U.S. economy remains remarkably resilient, which could keep upward pressure on inflation, giving the Federal Reserve reason to keep interest rates higher for longer.

“The economy continues to do better than expected and the 10-year Treasury yield has moved up, causing mortgage rates to climb,” Sam Khater, Freddie Mac’s chief economist, told the AP. “Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales.”

High inflation drove the Federal Reserve to raise its benchmark interest rate 11 times since March 2022, lifting the Fed funds rate to the highest level in 22 years.

Mortgage rates don’t necessarily mirror the Fed’s rate increases, but tend to track the yield on the 10-year Treasury note. As a result, what the Fed does with interest rates can influence rates on home loans.

Two years ago, homebuyers were paying an average of 2.86 percent interest on their loans, spurring a wave of home sales and refinancing.

The sharply higher rates now are contributing to a dearth of available homes, as homeowners who locked in those lower borrowing costs two years ago are now reluctant to sell and jump into a higher rate on a new property.

The lack of housing supply is also a big reason home sales are down 23 percent through the first half of this year.

The Associated Press contributed to this report