US Housing Market Hit by 7% Mortgage Rates and Bond Yield Surge

The US housing market is facing another significant challenge as mortgage rates have broken past 7%, the highest since President Trump's return to office. This surge in rates, driven by a jump in bond yields, will make it even more expensive for people to buy homes.

Economist Anthony Smith notes that when mortgage rates reach this level, there is a 'psychological weight' on potential buyers, making it harder for them to adjust to the increased costs. The housing market was already struggling, with home sales in August being the slowest in 14 months.

High interest rates are not only affecting buyers but also sellers, who may be less willing to cut prices even as many homeowners feel stuck with their current mortgage rates of under 4%. With more homes on the market, buyers may have some bargaining power if they can stomach the higher costs.

The reasons behind the surge in bond yields and mortgage rates are tied to the Federal Reserve's efforts to control inflation. Fed Governor Michael Barr stated that while economic growth is strong and the labor market is solid, inflation remains above target and requires further action to bring it under control.