US mortgage rates rose above 7 percent this week following a decision by Fitch to lower the US credit rating.
The rate for a 30-year fixed mortgage rose 16 basis points to 7.09 percent in the week ending August 4, according to data published Wednesday by the Mortgage Bankers Association (MBA).
Fitch announced on August 2 that it had decided to downgrade the US government’s top crediting rating from AAA to AA+, forecasting fiscal deterioration over the next three years and citing repeated down-to-the-wire debt ceiling negotiations.
The MBA’s Market Composite Index, a measure of the mortgage application volume, fell 3.1 percent on a seasonally adjusted basis and was down 4.0 percent before adjustment when compared to the prior week, according to Mortgage News Daily.
The Refinance Index decreased 4.0 percent and was 37 percent lower than it was in the same week last year.
Refinancing applications, the seasonally adjusted Purchase Index and purchasing volume were all lower as well.
“Treasury yields rates rose last week and mortgage rates followed suit, due to a combination of the Treasury’s funding announcement and the downgrading of the US government debt rating. Rates increased for all loan types in our survey, with the 30-year fixed mortgage rate increasing to 7.09 percent, the highest level since November 2022,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Additionally, the rate for FHA mortgages increased to 7.02 percent, the highest rate since 2002.”
Not a One-Off Spike
The average 30-year fixed-rate mortgage climbed 9 basis points to 6.9 percent in the last week of July, when the Federal Reserve raised its policy rate to the 5.25 to 5.5 percent range.
One basis point equals one-hundredth of one percentage point.
But even after raising interest rates to the highest since 2001, Fed chair Jerome Powell would not commit to holding the rate steady until the end of the year. “It is certainly possible that we would raise [rates] again at the September meeting, if the data warranted,” he said in a statement last week, adding, “I would also say it’s possible that we would choose to hold steady at that meeting.”
This past June the inflation rate stood at 3 percent – one percent higher than the 2 percent target set by the Fed, Forbes Advisor pointed out.
Fitch Downgrades US Government’s Credit Rating Citing Steady Deterioration
The White House slammed last week’s decision by Fitch to lower the government’s credit rating, with press secretary Karine Jean-Pierre declaring that it “defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world.”
Fitch cited “a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025,” in announcing its decision.
The move was similar to one in 2011 by Standard & Poor’s.
Indicators are Increasingly Negative
The MBA’s Market Composite Index, a measure of the mortgage application volume, fell 3.1 percent on a seasonally adjusted basis and was down 4.0 percent before adjustment when compared to the prior week, according to Mortgage News Daily.
The Refinance Index decreased 4.0 percent and was 37 percent lower than it was in the same week last year. Refinancing applications, the seasonally adjusted Purchase Index and purchasing volume were all lower.
“Treasury yields rates rose last week and mortgage rates followed suit, due to a combination of the Treasury’s funding announcement and the downgrading of the US government debt rating. Rates increased for all loan types in our survey, with the 30-year fixed mortgage rate increasing to 7.09 percent, the highest level since November 2022,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.
“Additionally, the rate for FHA mortgages increased to 7.02 percent, the highest rate since 2002. Not surprisingly, mortgage applications continued to decline given these higher rates, with overall application counts falling for the third consecutive week, as both purchase and refinance activity declined. The purchase index fell for the fourth consecutive week, as homebuyers continue to struggle with low for sale inventory and elevated mortgage rates,” Kan said.
