US Long Term Mortgages Edge Closer to Seven Year Highs

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By Jacob Maslow

Long-term mortgage rates in the US rose this week following two consecutive weeks of declines. 30-year fixed rate mortgages hit their second highest level in seven years against a backdrop of rising interest rates in the US economy.

Freddie Mac reported on Thursday that the average rate on 30-year, fixed-rate mortgages stood at 4.62 percent, their second highest level this year after the average 30-year mortgage rate reached a high of 4.66 percent on May 24. This week’s figure was an increase from the 4.54 percent recorded in the previous week. The 30-year mortgage rate averaged 3.91 percent the same time a year earlier.

The average rate on 15-year, fixed rate loans rose to 4.07 percent this week from the 4.01 percent recorded last week.

Sam Khater, the Chief Economist at Freddie Mac said: “The 30-year fixed-rate mortgage climbed eight basis points to 4.62%, and the Federal Reserve Board on Wednesday raised the federal funds rate by 25 basis points,” he said. “The good news is that the impact on consumer budgets will be smaller than past rate hike cycles. That is because a much smaller segment of mortgage loans in today’s market are pegged to short-term rate movements. The adjustable-rate mortgage (ARM) share of outstanding loans is a lot smaller now – 8% versus 31%– than during the Fed’s last round of tightening between 2004 and 2006.”

Mortgage Applications Lower


Whilst interest rates are rising to seven-year peaks, mortgage applications in the US fell. The Mortgage Bankers Association reported on Wednesday that overall home loan applications dropped 1.5 percent to 365.3 in the week ending June 8th. The week prior saw US mortgage applications increase for the first time in seven weeks as US mortgage applications fell to their lowest level since the beginning of 2016.

The rising interest rates in the US has been cited as a major cause for the drop in mortgage applications. Strong economic data from the world’s largest economy has seen the Federal Reserve raise interest rates three times already this year. As jobless claims hit a 44 year low last week, and with record unemployment, the Fed has been confident enough to speculate on raising interest rates a fourth time by the end of the year.

Commercial Real Estate Volumes Higher

In the commercial market, the rise in interest rates has not affected the average commercial mortgage company. The value of commercial property deals in the US increased 6.7% in the first quarter from a year earlier. However, higher interest rates and weaker demand for office and retail real estate could weigh on the market over the coming months. Should the Federal Reserve raise interest rates, then commercial real estate loans will also rise, adding pressure to a market already being squeezed by rising rates.

Commercial property prices inched higher, showing a meagre 0.1% last month, whilst on a yearly basis commercial property prices have fallen 1.4% from the same time last year.

Both the commercial and residential property markets will be keenly watching the Fed’s next month in their upcoming July meeting.

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