Americans’ dreams of owning a home are being crushed as mortgage rates skyrocket to levels not seen in over two decades, with experts warning the worst is yet to come. The average rate on the popular 30-year fixed mortgage has surged to a shocking 7.48%, a staggering increase of 29 basis points in just one week, leaving many potential buyers reeling.
Mortgage rates soared to the highest level since November 2000, crushing affordability for potential homebuyers. https://t.co/FIiFVMuIkt
— CNBC (@CNBC) August 21, 2023
The cause of this unprecedented surge is investor concerns that high interest rates, coupled with soaring inflation, will continue to plague the housing market for years to come. The impact of the Covid-19 pandemic has only compounded the issue, with home prices inflated to historic levels, putting them out of reach for many hardworking Americans.
Current homeowners face a new nightmare – the dreaded “golden handcuffs” – as they are trapped in their homes, reluctant to sell, and see their tempting ultra-low rates slip away. With rates around or below 3%, those still locked in are left with few options, as moving or refinancing would mean more than doubling their monthly payments.
The impact on potential buyers is no less dire. The difference in affordability compared to just one year ago is shocking, with the average rate on the 30-year fixed at around 5.5%. For those looking to buy a $400,000 home with a 20% down payment on a 30-year fixed loan, the monthly payment today, including principal and interest, will be roughly $420 more than it would have been just one year ago.
Desperate for alternatives, more borrowers are turning to adjustable-rate loans, hoping for lower interest rates even for shorter fixed terms. But even these are not as enticing as they once were, with the average rate on a 5-year ARM hovering at a worrisome 6.2%. According to the Mortgage Bankers Association, the ARM share of applications has jumped to 7%, up from less than 2% last year, as Americans struggle to find a way to afford their dream of homeownership.
Even the nation’s homebuilders are feeling the impact of this alarming trend, with many offering incentives such as lower prices or buying down rates for both short and long terms. Unfortunately, these measures have had limited success, with homebuilder sentiment in August plummeting as higher interest rates continue to pose a significant threat to the industry’s survival.
The reality is that the housing market is on the brink of a crisis, with experts predicting that the worst is yet to come. With interest rates not showing any signs of slowing down, Americans must prepare for a new reality in which homeownership is little more than a pipe dream.
