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Housing: Mortgage rates breach 6% for first time since 2008

Mortgage rates surged past 6% this week, the highest level since November 2008, worsening already rampant affordability concerns.

The rate on the 30-year fixed mortgage jumped to 6.02% from 5.89% the week prior, according to Freddie Mac, putting the average rate 2.80 percentage points higher than the start of the year.

As high borrowing costs and tight inventory levels continue to sap affordability to three-decade lows, inflation-struck buyers are no longer scrambling to close a deal. The few who remain in the market are using their newfound bargaining power to leverage pricing or repairs, further diminishing seller confidence.

“We have a fairly abrupt change in the market this year in terms of both infrastructure, certainly home prices, and the affordability equation changed appreciably from where we began the year to where we are right now,” Keith Gumbinger, vice president of HSH.com, told Yahoo Money. “We're kind of in a period of adjustment right now.”

Higher rates slump purchase demand

Demand for mortgages has remained at a 22-year low since the end of August, according to the Mortgage Bankers Association’s survey for the week ending Sept 9, as purchase and refinance activity continued to decline.

Purchase application volume made a slight gain of 0.2% from the previous week — as more first-time homebuyers opted for government-backed home loans that require smaller down payments — but overall purchase activity is 29% lower than a year ago.

That small increase has been overshadowed by the sharp plunge in purchase applications, MBA vice president of communications, Adam DeSanctis, told Yahoo Money, which continue to be “weighed down by weaker affordability conditions and higher rates.”

High home prices and tight inventory levels have pushed affordability to its worst level in 37 years, mortgage technology and data provider Back Knight reported last week. Although home price growth has softened in recent months, they remain out of step with the income levels required to afford a monthly mortgage payment for the median home price.

At last week’s 30-year rate of 5.89%, the buyer of a median-priced home is looking at a monthly payment of $2,100, a 66% jump from last year, according to Realtor.com.

“The record low interest rates that we’ve seen over the last two and a half years have really allowed home price growth to outpace income growth,” Andy Walden, recently told Yahoo Money. “In this affordability landscape it would take a combination of a 40% rise in incomes, roughly a three percentage point decline in 30-year rates, or a 30% pullback in home prices.”

During an open house by Prudential Realtor Tracy Do, interested buyers, realtors and brokers make a steady stream of visitors in and around this 1920's California Bungalow in the Highland Park which is listed for $379,000. (Credit: Allen J. Schaben/Los Angeles Times via Getty Images)
During an open house by Prudential Realtor Tracy Do, interested buyers, realtors and brokers make a steady stream of visitors in and around this 1920's California Bungalow in the Highland Park which is listed for $379,000. (Credit: Allen J. Schaben/Los Angeles Times via Getty Images)

Sellers scramble to close deals

As buyers reassess their plans, home sellers are growing more anxious about their prospects.

After rates surged this past week, the share of sellers slashing their asking prices continued to climb. Approximately 11% of homes for sale registered a price cut in August, Realtor.com data showed, up 19.4% year over year and closing in on average 2017 to 2019 levels.

A separate study by Redfin showed that 35% of homes sold above list price, down from 49% a year ago.

The median home price for active listings also fell to $435,000 in August, according to Realtor.com, down from $449,000 the month prior and June’s record high of $450,000. The month-to-month decline was the sharpest decline registered in six years, still prices remain 14.2% up from a year ago.

That’s too much for some sellers, who are pulling their listings from the market. The number of freshly listed homes declined 13.4% from a year ago in August, Realtor.com said, and were down in 42 of the 50 largest markets.

A Fannie Mae confidence index also showed that the percentage of sellers who say it's a bad time to sell increased from 27% in July to 35% in August.

“It's kind of a two way street, confidence overall hit a new record low in September, that was mainly driven by home sellers feeling a bit more pessimistic about housing conditions and selling opportunities,” Mark Palim, deputy chief economist for Fannie Mae, told Yahoo Money. “They're no longer selling houses at the top market value as they were just a few months ago.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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