NEW YORK - As concerns around inflation persist, mortgage rates climbed above 6 per cent this week, their highest point since late 2008 and more than double their level a year ago, further squeezing the budgets of would-be home buyers and cooling off a once red-hot housing market.

Mortgage rates have been on the rise since the start of the year as the Federal Reserve has affirmed its commitment to raise its key interest rate to tame soaring consumer prices. With inflation remaining stubbornly high in August, the Fed is expected to raise the federal funds rate again when it meets next week. It has already increased rates by 2.25 percentage points in four actions since May.

Mortgage rates do not directly track the Fed's key interest rate, as credit cards do, but they are influenced by it. Instead, they tend to track the yield on 10-year Treasury bonds, which are driven by the outlook for inflation and expectations around the Fed's action.

"The housing market is the most sensitive to the Federal Reserve's policy," said Dr Lawrence Yun, chief economist at the National Association of Realtors. "High inflation requires the Fed to be even more aggressive than previously assumed and, therefore, the broad bond market - including the mortgage market - has reacted."

The average rate on a 30-year fixed-rate mortgage, the most popular home loan, was 6.02 per cent as at Thursday, public finance company Freddie Mac reported, up from 5.89 per cent the week before. The average rate for an identical loan was 2.86 per cent in the same week in 2021.

Freddie Mac chief economist Sam Khater said in a statement that the rate increase would help cool the housing market but that the number of homes for sale was still inadequate to meet demand.

"This indicates that while home price declines will likely continue, they should not be large," he said.

The rate on a 30-year fixed-rate mortgage may feel particularly high given its recent history; it was 3.72 per cent at the beginning of 2020 and spent much of the past two years below 3 per cent.

With a longer view, however, rates averaged about 7.8 per cent over the past half-century, according to Freddie Mac, which began tracking borrowing costs in 1971. In the early 1980s, rates stretched well into the double digits, exceeding 18 per cent in 1981.

But the combination of higher mortgage rates and already inflated home prices has significantly limited what prospective home buyers can afford, pushing many of them out of the market.

With a down payment of 10 per cent on the median home price listed in the database on Realtor.com, the typical monthly mortgage payment is now roughly US$2,352 (S$3,300), up 66 per cent from US$1,416 a year ago, taking both higher home prices and interest rates into account.

That does not account for other expenses - such as property taxes, home owner's insurance and potentially higher closing costs, as well as mortgage insurance, which is often required on down payments of less than 20 per cent.

"There is serious sticker shock," said Mr Glenn Kelman, chief executive of Redfin, a real estate brokerage, which announced in June that it would cut about 8 per cent of its workforce because of lower demand. "It is just a really thinly traded market. It is hard to put deals together."

Higher rates have certainly been a driving factor, but the uncertain economic outlook has also played a role.

"Some people have decided: 'I just can't buy a house. I am stepping back'," Mr Kelman said.

"Others are just spooked: 'I am worried about the stock market. I am worried about my job and the broader economy'."

Demand has dropped swiftly. Mortgage applications were largely flat for the week ended Sept 9, rising 0.2 per cent from the previous week, according to data from the Mortgage Bankers Association. But applications were down nearly 29 per cent from a year earlier.

Refinancing demand has also plummeted - applications to refinance home loans were down about 4 per cent from last week, but dropped 83 per cent from the same week a year earlier.

Home sales are down 13 per cent in the year to date, said Dr Selma Hepp, lead economist at CoreLogic, a real estate data analytics firm.

"Further increases in mortgage rates, beyond 6 per cent, on a 30-year fixed-rate mortgage will exacerbate affordability challenges," she said.

Home price growth has also slowed, Dr Hepp said, but the current "recalibration" is a positive outcome of higher rates.

"All these were intended consequences of tightening of financial conditions and mean healthier housing markets ahead," she said. NYTIMES