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Pressure builds on housing market as mortgage rates cross 6%, a first since 2008

SHARE Pressure builds on housing market as mortgage rates cross 6%, a first since 2008
Mortgages rates have hit their highest point since 2008, impacting Utah’s housing market.

A Wells Fargo and a Zions Bank are pictured on Foothill Drive in Salt Lake City on Thursday, Sept. 15, 2022. Mortgages rates have hit their highest point since 2008, impacting Utah’s housing market.

Laura Seitz, Deseret News

Mortgage rates crossed the 6% threshold and hit their highest point since 2008, upping the pressure on the U.S. housing market and pricing out even more would-be homebuyers.

Today’s mortgage rate: The average rate on a 30-year mortgage hit 6.02% on Thursday, Freddie Mac reported, up 0.13 points from 5.89% last week and more than double what it was a year ago, 2.86%.

Thursday afternoon, another mortgage rate tracker, Mortgage News Daily, reported the average rate for a 30-year fixed mortgage hit 6.33%.

The nearly 15-year peak in mortgage rates comes “alongside hotter-than-expected inflation numbers this week,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

Is a housing bubble about to pop? Freddie Mac predicts the high rates will continue to temper demand across the U.S. Although home for-sale inventory is rising, it still remains at “inadequate” levels, meaning home price declines will likely continue — but not fall off a cliff.

“Although the increase in rates will continue to dampen demand and put downward pressure on home prices, inventory remains inadequate. This indicates that while home price declines will likely continue, they should not be large,” Khater said.

The big picture: Mortgage rates have been climbing since earlier this year, as the Federal Reserve continues its battle against record levels of inflation. The Fed has upped its key borrowing rates with the goal to clamp down on high prices for gas, grocery and other consumer goods.

Inflation eased slightly in August yet remained stubbornly high, with costs up 8.3%, news that’s likely to bolster the Federal Reserve’s aggressive tactics. The Fed is expected to again raise rates when it meets next week.

Mountain West states, including Utah, saw the highest regional inflation in the country in August, with costs up 9.6%.

Who controls mortgage rates? The Federal Reserve doesn’t set mortgage rates, but its decisions do influence mortgage rate trends.

The Fed’s decisions typically have a more direct impact on short-term products like credit cards, while mortgage rates tend to follow yield on 10-year Treasury bonds, which are driven by expectations around inflation rates and the Fed’s decisions.

Historical context: While mortgage rates are indeed high compared to recent years’ rates — especially given the sub-3% rates amid the COVID-19 pandemic — it’s important to note they are still significantly lower than peaks over the last 20, 30 and 40 years.

In 1981, the average 30-year mortgage rate hit an all time high of 18.44%. In the ’90s, rates fluctuated between a high of 10.67% in 1990 to 9.23% in 1994 to 7.65% in late 2000. In the 2000s, rates bottomed around 5.21% in 2003 before rising above 6% before the 2006 housing bubble popped amid the subprime mortgage crisis, sending the global economy into the Great Recession.

After 2010, rates have fluctuated between 3% and 5%, but when the COVID-19 pandemic sent the U.S. economy into uncertainty, the Federal Reserve said it would keep rates low until it was confident the economy and the labor markets had weathered the storm.

Why are home prices still so high? The pandemic, along with record low rates, had its own impact on the housing market. Demand — and housing prices — skyrocketed as Americans, set free by remote work, reevaluated their lives and seized opportunities to move, sell and buy. The burgeoning West was an appealing destination, offering larger homes at smaller price points compared to big, expensive cities like San Francisco or New York.

Since then, as rates have climbed, the pandemic housing frenzy has fizzled into a hangover. Pandemic hot spot areas, especially metros like Boise, Idaho and Phoenix, Arizona, have been the first markets to see home prices decline — but home prices still remain high compared to pre-pandemic levels.

The sheer speed at which mortgage rates have jumped has shocked homebuyers. The rapid rate jumps have meant the difference between hundreds of dollars on monthly mortgage payments for would-be buyers.

How do 6% rates impact Utah? In Utah — where prices have begun to dip slightly but still remain stubbornly high — high mortgage rates are impacting demand, but are not helping the state’s affordability crisis.

Rates to the tune of 5% to 6%, combined with high prices, have priced out a staggering 70% to 75% of Utahns, according to calculations by Dejan Eskic, a senior research fellow at the University of Utah’s Kem C. Gardner Institute and one of Utah’s leading housing experts. They’ve ballooned the typical monthly mortgage payments from $1,400 a month earlier this year, when interest rates were lower, to now over $2,600.

As of July, home prices in Utah were up 10.1% compared to last year, with a median price of $543,600, according to Redfin.