A notable shake-up is underway in the real estate sector as 30-year mortgage rates experience an unexpected climb, reaching 7.09% in August 2023.
The average contract interest rate for 30-year fixed-rate mortgages, tailored for those with conforming loan balances of $726,200 or less, surged from 6.93% to 7.09%, the highest since mid-November 2022, according to the latest weekly report from the Mortgage Bankers Association (MBA) of America.
Federal Housing Administration (FHA) loan rates, often favored for their appeal to first-time homebuyers and those with constrained budgets due to their low down payment options, have surged to 7.02%, reaching the highest reading since 2002.
Notably, even larger loan categories are experiencing the repercussions, with jumbo loans (exceeding $726,000) peaking at 7.04%, marking the highest point in over a dozen years.
Joel Kan, vice president and deputy chief economist at MBA, provided insight into the driving forces behind this rate surge. He attributes it to a dual catalyst - the unveiling of the Treasury's funding plan and a subsequent downgrade in the U.S. government debt rating.
Mortgage rates are echoing the trajectory of the surging Treasury yields. The yield on a 30-year Treasury bond has surged from 4% to 4.20% since the start of the month, briefly revisiting levels last seen in November 2022.
Mortgage Applications Continue To Dip: Real Estate Stocks Follow Suit
During the first week of August 2023, mortgage applications across the United States plunged by 3.1%, marking the third consecutive decline.
The decline is reflected in refinancing applications, which saw a 4% downturn, and home purchase applications, which experienced a 2.7% dip.
The combined influence of escalating interest rates and restrained demand for new mortgages is adding pressure on real estate stocks.
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