Mortgage Rates Rise to 16-year High

The American housing market faces a chronic downfall as the mortgage rate has risen to the highest levels since 2006.

According to the data released by the Mortgage Bankers Association, the 30-year fixed mortgage rate increased to 6.81% for the week which ended on October 6.

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This rise in the mortgage rate means the cost of owning a house is peaking at an alarming rate.

Housing Prices Touch a New High in America

The latest mortgage rate hike suggests the costs of houses have doubled since the start of 2021.

One of the major reasons for this unprecedented hike in housing prices is the continuous increase in interest rates by the Federal Reserve. This is aiming to tame inflation ahead of the midterm elections.

Although lenders are desperate for new business opportunities, the increasing interest rates are urging people not to buy new properties.

The higher interest rate usually acts as a deterrent for borrowers, who try to avoid loans with higher rates, due to mortgage delinquencies.

One mortgage analytics company, Black Knight, indicated mortgage delinquencies are at a record low these days, as people are reluctant to take loans at the existing interest rate.

Mortgage Bankers Association also noted credit availability for higher loans is declining. These are the loans that most people use to purchase expensive properties.

Higher interest rates are encouraging people to turn towards adjustable mortgage rates since they provide loans at lower interest rates. However, adjustable rates are usually considered riskier.

Meanwhile, the continuous disturbance in the housing sector is urging builders not to make new homes. In the last several months, home resales have already declined.

Global Economic Recession on Its Way

As the housing markets implode, fears of an economic recession are also rising significantly. The mortgage crisis was the leading cause of the 2008 financial disaster, when global economies nosedived, resulting in the breakdown of the worldwide financial systems.

Now, when the current mortgage rate is touching the numbers of 2006, many economists are predicting a similar sort of economic recession worldwide.

Apart from that, mortgage credit availability is also declining as it reached its lowest level since 2013 when the housing market was still facing the aftershocks of the 2008 financial disaster.

The chief operating officer of Mortgage News Daily, Matthew Graham, stated the Fed is trying to destroy the economy by increasing interest rates and keeping them higher for a longer period of time.

Just like the 2008 financial crisis, the housing markets are vulnerable to disaster across the globe this time as well.

For instance, subsequent interest rate hikes in America have urged other governments to increase their interest rates, as well to avoid the downfall of their currencies.

This spree of interest rate hikes worldwide is eventually straining the global housing sector.

This article appeared in The State Today and has been published here with permission.