The rising cost of mortgage rates has been a major factor that has affected the US housing market. It was the first time in 14 years that rates have exceeded 6 percent.
The 30-year fixed-rate mortgage rate hit 6.02 percent this week, which is higher than the previous week's 5.89 percent and the same rate a year ago. The last time it was this high was in November 2008. The average point on a 30-year mortgage is 0.8 percent.
The rising cost of mortgage has led to a significant increase in the rate on 30-year fixed-rate loans. Since it is the most popular type of home loan, it has been able to increase its value in the past nine months. Each week, mortgage investor and lender Freddie Mac compiles data from around 80 lenders to come up with a national average. Refinancing rates are different depending on the type of loan and credit score.
The 15-year fixed-rate mortgage rate increased to 5.21 percent this week from 5.16 percent last week. The five-year adjustable-rate mortgage also rose to 4.93 percent from 4.64 percent.
The Federal Reserve is expected to increase short-term interest rates next week in response to the rising prices. This move could cause mortgage rates to increase even further. According to the Bureau of Labor Statistics, consumer prices rose by more than expected in August due to higher costs for food and housing.
The consumer price index increased by 0.7 percent in August and by 6.2 percent annually, which is the largest increase since 1991.
Since the inflation reading was more than expected, investors are now questioning if the Fed will be able to raise its benchmark rate by a hundred basis points, instead of the 75 basis points it did in July.
The Fed has been gradually raising short-term interest rates in an attempt to control inflation. It started this year with a 25-basis-point increase in March. It followed up with a 50-basis-point increase in May and a 75-basis-point increase in July. The central bank is expected to continue raising rates until it sees signs that inflation is starting to ease.