US mortgage rates keep going up, inching closer to 8%. The average 30-year fixed mortgage rate hit 7.5% last week after bond rates soared to their highest levels since 2001.
With mortgage rates at a two-decade high, the rising cost of homeownership puts it increasingly out of reach for many Americans. The housing problem is echoed in Australia and many other countries.
Yields on the US 10-year Treasury bond, which influences mortgage rates and other forms of borrowing, are close to 16-year highs. Treasuries recently touched 4.35%, before easing back slightly.
Higher mortgage rates scare away potential first-time borrowers and make current property owners (who in the US have mostly locked in their mortgage payments) increasingly unwilling to sell their homes and be forced into re-financing. It’s no surprise that existing home sales have slumped in the US. Sales of previously owned homes are down 16.6% compared to July 2022, according to National Association of Realtors data.
But just to put this in some historical perspective: it could be a lot worse. Mortgage rates reached their highest point in history in 1981 when the annual average was 16.6%.
Source: Investopedia
The situation in Australia is somewhat different because most mortgagees have variable-rate mortgages. Most borrowers in Australia who fix their mortgage interest rate do so for three years or less. This means that the fixed-rate term on most loans taken out during the pandemic has expired recently or will do so over the coming two years. 25% of fixed-rate loans outstanding in early 2022 have now expired; most have rolled on to a variable interest rate, rather than re-fixing at a higher rate. Another 40% of fixed-rate loans outstanding in early 2022 will expire by the end of 2023, and a further 20% by the end of 2024.
Mortgage rates in Australia
Source: Reserve Bank of Australia
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