The average rate for a 30-year fixed rate mortgage broke 7% on Thursday, the first time since April 2002, continuing ruthless downward pressure on the U.S. housing market.

That’s according to the latest survey by Freddie Mac, which showed rates for the most popular mortgage for U.S. homebuyers, the 30-year fixed, rose to 7.08%, up from 6.94% last week and up over 3% from this same time last year.

Those over 20-year highs will lead to “greater stagnation in the housing market,” Freddie Mac said.

What’s happening: “As inflation endures, consumers are seeing higher costs at every turn, causing further declines in consumer confidence this month,” Freddie Mac stated in its report Thursday. “In fact, many potential homebuyers are choosing to wait and see where the housing market will end up, pushing demand and home prices further downward.”

Other mortgage trackers have for weeks now shown mortgage rates had already broken 7%, but it’s the first time Freddie Mac’s survey has hit that threshold since 2002.

Here’s how much near 7% mortgage rates are eating up homebuyer power
  • On Wednesday, the Mortgage Bankers Association also showed the average 30-year fixed rate hit 7.16%, the highest rate since 2001, according to the association’s records.

“The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” said Joel Kan, the Mortgage Bankers Association’s vice president and deputy chief economist.

Kan noted purchase applications dropped 2% to their slowest pace since 2015, which is over 40% behind last year’s pace.

Where does the housing market go from here? As the Federal Reserve continues its aggressive fight with inflation, the Mortgage Bankers Association’s forecast “expects both economic and housing market weakness in 2023 to drive a 3% decline in purchase originations, while refinance volume is anticipated to decline by 24%.”

Housing market prices slowed at record pace in August. It’s just the beginning

Could mortgage rates hit 8%? Some national economists are contemplating an increasingly grim outlook for the U.S. housing market. Last week, National Association of Realtors’ chief economist Lawrence Yun warned real estate investors in a conference in Atlanta that mortgage rates could go up to 8.5%, “which would be another big shock to the housing market.”

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How have 7% rates impacted the market? The nation’s sharp rise in rates have had a devastating impact on housing affordability and demand. Suddenly sellers, after more than two years of enjoying dozens of offers on their homes despite record-high home prices, are now grappling with the reality that buyers have pulled back dramatically as they’re priced out.

  • The national median monthly mortgage payment jumped to $1,941 in September, up from $1,839 in August. That’s up $558 in the first nine months of the year, equal to an over 40% increase, according to the Mortgage Bankers Association.

What states are impacted the most? It’s no secret the West was ground zero for the pandemic housing frenzy and the fastest rising home prices. Now, the West is also taking the hardest hit.

The Mortgage Bankers Association’s Purchase Applications Payment Index, which is indicative of declining borrower affordability conditions, increased 5.5% to 163.6. An increase to that index means the mortgage payment to income ratio is higher due to increasing application loan amounts, rising mortgage rates or a decrease in earnings, according to the association.

  • The West has seen the highest increase to that index and thus declining borrower affordability conditions. The five states with the highest rates were Nevada (264.4), Idaho (257), Arizona (238.5), Utah (217) and Florida (210), according to the index.

Another hit to Utah homebuyers: In Utah, as mortgage rates hovered around 7% even before breaking the threshold,  the median monthly payment has exceeded $2,600, depending on the day. That’s priced out a startling 76% of Utahns from being able to afford the state’s median priced home, according to calculations by Dejan Eskic, a senior research fellow at the University of Utah’s Kem C. Gardner Policy Institute.

The housing market is correcting — but Utah’s affordability crisis isn’t going away
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