Mortgage rates in the United States have reached their highest level since 2000, as the war in Ukraine, the Covid-19 pandemic, and inflation fears have increased global economic uncertainty. According to Bankrate, the average 30-year fixed mortgage rate rose to 7.55 percent as of Sept. 27, up from 7.42 percent the previous week1. This is more than double the rate of 3.22 percent in early 20222.
The rise in mortgage rates has been driven by several factors, including the Federal Reserve’s tightening monetary policy, the surge in oil and commodity prices, and the geopolitical tensions between Russia and the West. The Fed has signaled that it will raise its benchmark interest rate one more time this year, and reduce the number of rate cuts in 2024, to combat inflation that has exceeded its 2 percent target3. Higher oil and commodity prices have also contributed to inflationary pressures, as well as increased the cost of production for many businesses4. The war in Ukraine, which erupted in January 2023, has added another layer of uncertainty to the global economy, as it has disrupted energy and food supplies, triggered sanctions and embargos, and heightened the risk of a wider conflict5.
The impact of higher mortgage rates on the housing market has been negative, as it has reduced affordability and demand for home buyers. According to the National Association of Realtors, existing-home sales fell 2.2 percent in August from July, and were down 1.5 percent from a year ago. The median existing-home price was $356,700 in August, up 14.9 percent from August 2022. However, the pace of price growth has slowed down from the record high of 23.6 percent in May. The inventory of unsold homes was at 2.6 months of supply at the current sales pace in August, slightly higher than the record low of 2 months in December.
The outlook for mortgage rates and the housing market remains uncertain, as it depends on how the economic and political situation evolves in the coming months. Some experts predict that mortgage rates will continue to rise in October, while others expect them to decline later this year if inflation cools down and the war in Ukraine is resolved peacefully1. For home buyers who are looking for a mortgage, it may be wise to shop around for the best rates and lock them in before they go higher. For homeowners who are looking to refinance, it may be too late to take advantage of the historically low rates that were available last year. However, there may still be some opportunities to save money by switching to a shorter-term loan or cashing out some equity6.