Turbulence in the US Home Financing Market: Mortgage Rates Reach New High

The recent developments in the U.S. real estate market are noteworthy: The interest rates for the country's most sought-after mortgage reached a new high of 6.73% last week, the highest level since July. This trend presents additional challenges to the recovery of the housing market, especially considering that the U.S. Federal Reserve is still aiming to lower short-term borrowing rates. The Mortgage Bankers Association reported on Wednesday that the average interest rate for a 30-year fixed mortgage increased by 21 basis points in the week ending October 25. As such, the primary credit rate is now 60 basis points higher than directly after the Federal Reserve meeting in mid-September, when an initial cut of the prime rate by half a percentage point was announced. Prior to this move, mortgage rates were dropping, breathing new life into the struggling housing market. Indeed, contracts for the purchase of existing homes rose as sharply in September as they had not for four years. These pending sales contracts often turn into actual sales one or two months later. However, shortly after the Fed's September meeting, mortgage rates began to rise again. The reason for this was unexpectedly positive economic data, including an increase in consumer spending and significant job gains, which dispelled recession concerns and strengthened the expectation that the Fed might slow down the rate cuts. A recent report, which casts both consumer and business spending in a positive light, further reinforced this view. At the same time, investors are betting that both inflation and interest rates could remain high should Donald Trump return to the White House and his Republican Party take control of Congress. The yields on ten-year U.S. Treasury bonds, closely linked to mortgage rates, reached an almost four-month high on Tuesday. Furthermore, the MBA reported that refinancing applications declined last week and now make up only 43.1% of all mortgage applications, which is below the historical average of 48%.