(WTVO) — The average mortgage interest rate on a 30-year home loan hit 6% Wednesday, for the first time since 2008.
According to the Mortgage Bankers Association, rising home costs are keeping prospective buyers from purchasing a home.
“The 30-year fixed mortgage rate hit the six percent mark for the first time since 2008 – rising to 6.01 percent – which is essentially double what it was a year ago,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
Applications for home mortgages dropped 1.2% last week, compared to the previous week.
During the COVID-19 pandemic, mortgage rates fell as low as 2.65% in January 2021.
Moody’s Analytics Chief Economist Mark Zandi told CBS News that a 6% rate means a typical homebuyer will pay $600 more a month for a 30-year mortgage.
The ongoing evolution of the forces behind an inflation rate that’s near a four-decade high has made it harder for the Fed to wrestle it under control. Prices are no longer rising because a few categories have skyrocketed in cost. Instead, inflation has now spread more widely through the economy, fueled by a strong job market that is boosting paychecks, forcing companies to raise prices to cover higher labor costs and giving more consumers the wherewithal to spend.
On Tuesday, the government said inflation ticked up 0.1% from July to August and 8.3% from a year ago, which was down from June’s four-decade high of 9.1%
But excluding the volatile categories of food and energy, so-called core prices jumped by an unexpectedly sharp 0.6% from July to August, after a milder 0.3% rise the previous month. The Fed monitors core prices closely, and the latest figures heightened fears of an even more aggressive Fed and sent stocks plunging, with the Dow Jones collapsing more than 1,200 points.
The core price figures solidified worries that inflation has now spread into all corners of the economy.
Economists fear that the only way for the Fed to slow robust consumer demand is to raise interest rates so high as to sharply increase unemployment and potentially cause a recession. Typically, as fear of layoffs rises, not only do the jobless reduce spending. So, too, do the many people who fear losing their jobs.
Some economists now think the Fed will have to raise its benchmark short-term rate much higher, to 4.5% or above, by early next year, more than previous estimates of 4%. (The Fed’s key rate is now in a range of 2.25% to 2.5%.) Higher rates from the Fed would, in turn, lead to higher costs for mortgages, auto loans and business loans.
The Fed is widely expected to raise its benchmark short-term rate by a substantial three-quarters of a point next week for a third consecutive time. Tuesday’s inflation report even led some analysts to speculate that the central bank could announce a full percentage point hike. If it did, that would amount to the largest increase since the Fed began using short-term rates in the early 1990s to guide consumer and business borrowing.
The Associated Press contributed to this report.