SCOTT SIMON, HOST:
The rising prices of fuel, groceries - everything else - was reflected in the turbulent government bond market this week. Investors who lend money to the government are demanding bigger returns. That is driving up borrowing costs for everyone else. The average rate on a 30-year home mortgage, for example, jumped above 7% this week, the highest since President Trump returned to the White House. NPR's Scott Horsley joins us. Scott, Thanks so much for being with us.
SCOTT HORSLEY, BYLINE: Good morning, Scott.
SIMON: The housing market was already in a slump. Could this make it worse?
HORSLEY: It certainly doesn't help. You know, if you go back to February, just before the Iran war began, the average rate on a 30-year home loan briefly dipped below 6%. And people were beginning to think this might be the year we'd see a rebound in the housing market. Instead, rates have moved in the opposite direction. And economist Anthony Smith, who's with realtor.com, says that just makes it more expensive for anyone who's trying to buy a home.
ANTHONY SMITH: There is definitely a psychological weight when you start getting into that 7% range. It's hard to adjust to, especially when this is typically the best time to buy - during those fall to winter months.
HORSLEY: We've just come through the spring and summer homebuying season, which was pretty much a bust. Home sales in August were the slowest in 14 months. And when people aren't buying houses, they're also less likely to buy things like furniture and appliances.
SIMON: And, Scott, how are the 7% mortgage rates affecting sellers?
HORSLEY: You know, high interest rates aren't great for sellers either. They are not cutting prices, for the most part. Home prices have been climbing for more than three years now. But about half the homeowners who have a mortgage themselves are paying interest rates of less than 4%. And Smith says they're not eager to trade that for a 7% loan, so many are just staying put even if they would really like to move.
SMITH: If you don't have those pressures placed on you or, like, you know, a new job or anything like that, it gets a bit easier to rationalize and justify sitting at home a little bit longer.
HORSLEY: Even though a lot of current homeowners feel stuck, for the limited number of buyers, there are more homes on the market to choose from that could put buyers in a stronger bargaining position if they're able to stomach these 7% mortgage rates.
SIMON: And what's caused the mortgage rates to climb up so much?
HORSLEY: Mortgages are typically pegged to the rate on 10-year government bonds, and that 10-year Treasury yield has jumped sharply in the last couple of weeks. It closed Friday just below 5.2%, which is the highest it's been in more than two decades. And the reasons for that are kind of a good-news, bad-news story.
The good news is even with these high rates, the U.S. economy's been resilient. Unemployment's low. Retail spending is solid. Big tech companies are still shoveling tons of money into artificial intelligence. The bad news is the Federal Reserve may have to tap the brakes even harder and raise interest rates even higher to bring inflation under control. Here's the way Fed Governor Michael Barr described it in a speech this week.
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MICHAEL BARR: Economic growth is strong, and the labor market is solid. But inflation is above our 2% target and not clearly trending toward target in a timely way.
HORSLEY: Part of the challenge is the hottest parts of the economy, like the booming AI sector, are pretty much immune to these higher interest rates. It's the weaker parts, like housing, that get clobbered, and it looks like beatings will continue until morale improves.
SIMON: And why is morale so weak if the economy is OK?
HORSLEY: Because the cost of living is still high. It's going up faster than the average worker's paycheck, and rising interest rates just make things even more expensive for anyone who has to borrow money.
SIMON: NPR's Scott Horsley. Thanks so much.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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