U.S. mortgage rates climb above 7% in another blow to housing market

Mortgage rates hit a two-year high last week: The average 30-year fixed rate mortgage sat at 7.12% for the week that ended Sep. 18, according to the Mortgage Bankers Association, and reached 7.26% as of this Wednesday afternoon. Meanwhile, mortgage applications have declined again for the third week in a row.

Potential buyers aren’t thrilled about buying when mortgages are this high, so demand is down, which makes sense. But something else a little weirder is happening too.

“We’re also seeing more homeowners deciding to list their homes,” said Redfin Chief Economist Daryl Fairweather. “Either these sellers are just tired of waiting because it’s been so long that mortgage rates have been high, and if they’re waiting for a better market, maybe they realize that that better market isn’t coming, or they are getting nervous that prices might fall.”

More sellers means more supply. Add in sluggish demand, and home prices have slowed, rising just 2% yearly, which is slower than overall inflation and slower than wage growth. All that would be great, except for the high mortgage rates.

“Since the start of the year, consumers have lost roughly 10% in purchasing power, just from higher interest rates,” said Ali Wolf, chief economist at Zonda.

When demand is slow and prices aren’t rising much, builders aren’t interested in building new homes.

“The permits numbers are down, the starts numbers are down year-to-date,” said Danushka Nanayakkara, a forecaster at the National Association of Home Builders.

Building a home is a long-term kind of thing, so homebuilders usually look past short-term bumps in the road like a flare up of mortgage rates. But right now, they’re not looking past it — because it isn’t a short-term thing.

“In our forecast, we don’t have the mortgage rates coming close to six or below six in the next two-year window,” Nanayakkara said.

There is a silver lining: If you’re a seller, prices are at least still generally rising. If you’re lucky enough to be able to buy, two out of three homebuilders are offering discounts to offset higher mortgages and, according to Nanayakkara, there are fewer bidding wars.