US Mortgage Rates Surpass 7%... 10-Year Yields Rise to Highest in 21 Years

A Sharp Rise of 2%P from Early 5% Levels a Year Ago
Impact of US 10-Year Treasury Yield Increase

As the yield on the 10-year U.S. Treasury bond soars, U.S. mortgage rates have jumped to their highest level in 21 years since 2002.

On the 17th (local time), The Wall Street Journal (WSJ) cited Freddie Mac, a U.S. government-sponsored mortgage company, reporting that the average 30-year fixed mortgage rate rose by 0.13 percentage points from 6.96% last week to 7.09% this week. This marks a nearly 2 percentage point surge from 5.13% in the same period last year.

The rise of U.S. mortgage rates to the highest level in 21 years is attributed to expectations that the Federal Reserve's (Fed) monetary tightening will be prolonged. Mortgage rates are closely influenced by the 10-year Treasury bond, which is linked to the U.S. benchmark interest rate. On this day, the 10-year U.S. Treasury yield surpassed 4.3% for the first time since 2007.

Amid hopes for a soft landing and expectations of prolonged Fed tightening, the 10-year Treasury yield is soaring. The market is discussing the possibility that the Fed will raise the benchmark interest rate once more this year, following its increase to the highest level in 22 years at 5.25?5.5%. This is due to the hawkish tone revealed in the minutes of the July Federal Open Market Committee (FOMC) meeting released the day before, where Fed officials mentioned maintaining a "restrictive monetary policy stance." Additionally, the U.S. Treasury's indication of potential deficit bond issuance is fueling the rise in long-term yields.

Former Treasury Secretary Larry Summers forecasted in an interview with Bloomberg TV the previous day that the 10-year U.S. Treasury yield could rise to 4.75% over the next decade.

The rise in mortgage rates is expected to deliver a direct blow to the already cooled U.S. housing market due to the Fed's aggressive tightening. According to WSJ, purchasing a $500,000 (approximately 670 million KRW) home a year ago required a 20% down payment and a 30-year fixed mortgage at a 4% interest rate on the remaining amount, resulting in total interest payments of $290,000 (approximately 390 million KRW). However, buying the same home under the current conditions would mean paying about $560,000 (approximately 750 million KRW) in interest, nearly double the previous amount.

In this situation, both housing demand and supply decrease. WSJ explains that this weakens homebuyer demand, and homeowners tend to withdraw their properties from the market and wait rather than sell homes with low-interest mortgages to "trade up."

Arnel Brady II, Senior Loan Officer at Bay Equity Home Loans, said, "Overall, most consumers are in a wait-and-see mode," adding, "They are waiting for the market to improve before jumping back in."

This content was produced with the assistance of AI translation services.