Mortgage rates surge to highest mark since 2002

Mortgage rates accelerated past 7% for the first time since November, landing at its highest level since 2002, according to Freddie Mac's weekly Primary Mortgage Market Survey.

The average 30-year mortgage rate came in at 7.09% for the seven-day period ending Aug. 16, up 13 basis points from 6.96% a week earlier. The current level now stands close to two percentage points higher from the 5.13% average reported a year ago. The latest rise also marks the fourth straight week of increases in the 30-year rate.

The last time the 30-year average was as high in Freddie Mac's survey was April 2002 when it stood at 7.13% Since finishing 2021 at 3.11%, the 30-year rate has shot up almost 4% in 20 months.

Experts pointed to the effect recent economic data had in driving rates higher. "The economy continues to do better than expected and the 10-year Treasury yield has moved up, causing mortgage rates to climb," said Sam Khater, Freddie Mac's chief economist, in a press release. 

Similarly, the 15-year average jumped up 12 basis points to 6.46% compared to 6.34% seven days ago, according to Freddie Mac. In the same weekly period 12 months ago, the 15-year rate came in at 4.55%.

Strong retail data over the past week helped fuel additional upward movement after the Federal Reserve announced a 25-basis point hike in the federal funds rate in July, according to Orphe Divounguy, senior macroeconomist at Zillow Home Loans. The retail sales report "showed that U.S. consumers continue to spend despite higher interest rates and inflation, which remains elevated despite continuing to cool," Divounguy said in a research statement. 

Signs of a robust economy will keep upward pressure on Treasury yields and mortgage rates, which often move in tandem, Divounguy added.

Yields on the 10-year Treasuries showed a mostly steady climb upward over the past week. On Aug. 10, yields came in at 4.02% but began trading Thursday at 4.29%, rising to 4.31% by 12 noon.

But the recent upswing in the 30-year average also comes as productivity, wage and jobs data could cause the Fed to take the foot off the gas pedal in its inflation fight, "something that could offer some much needed relief for interest rates, Divounguy added. 

"But for now, upside inflation risk remains and this week's release of the Fed's meeting minutes revealed rate hikes may still be on the table," he said.

Earlier this week, the Mortgage Bankers Association also reported average 30-year interest rates among its members leaping to their highest mark in more than two decades for conforming loans. However, rates for Federal Housing Administration-backed mortgages pulled back below 7%, with volumes rising for applications sponsored by the agency. The increase "could indicate that some buyers remain active in their home buying search despite higher rates," said MBA President and CEO Bob Broeksmit in a statement. 

But larger market forces continue to cap the extent buyer activity can currently grow, with costs also expected to remain elevated through next year, according to analysts at Moody's Investors Service.

"Demand has been impacted by affordability headwinds, but low inventory remains the root cause of stalling home sales," Freddie Mac's Khater said.