METRO DETROIT – For the first time in 20 years, mortgage rates hit 7% as the Federal Reserve aggressively raises rates to tame inflation, making it more expensive for buyers in Michigan, including the metro area of Detroit, to acquire homes and less profitable to owners to resell them.
The last time the 30-year fixed rate was this high was in April 2002. Higher borrowing costs have hit consumers as inflation persists at a 40-year high, making almost all the more expensive basic necessities.
A year ago at this time, the 30-year fixed rate mortgage averaged 3.14%, according to Freddie Mac — the Federal Mortgage Corporation on real estate loans.
In a report released last week, ATTOM Data, a curator of national real estate data, said the third quarter sales profits fell 3% on median-priced single-family homes and condos in more than half of the 186 metro areas tracked. Mortgage rates were over 6% at the time of the report’s release.
The report showed that profit margins – or the percentage change between median purchase and resale prices – fell from 57.6% to 54.6%. Seller profits are even higher than a year ago, when margins were 48.8%.
Metro Detroit sellers saw their quarterly earnings rise 1% from $94,096 to $95,000, and 8% in the past year, from $78,000 to $95,000. Home prices in the Detroit area also saw an increase of 4.5% quarter over quarter and 7% over the past year, even though home sales are down 20% in the area.
The Commerce Department said in a better-than-expected report Thursday that the economy grew at an annual rate of 2.6% from June through September, ending two straight quarters of contraction. Gross domestic product rose after two months of stagnation, and exports and consumer spending both rose, supported by a healthy labor market.
The Fed has raised interest rates five times this year and is set to do so again in November and December. Analysts say this has helped curb inflation, but is causing upheaval in the housing market.
Housing investment plunged at an annual rate of 26% under soaring interest rates. The third quarter was the sixth consecutive quarter to see a decline in residential investment. New home construction is down about 8% from a year ago.
Many potential owners are delay the decision to buywaiting “to see where the housing market ends up, pushing demand and house prices even lower,” Sam Khater, chief economist at Freddie Macsaid in a press release.
Buyers buying a $400,000 home with a 7% fixed rate mortgage would pay approximately $760 more per month than they did at the end of 2021. That’s about $150 more than last week’s rate, according to Barrons.
The Associated Press contributed reporting