The U.S. has seen a significant surge in mortgage rates, reaching a 22-year peak of 7.41% last week, according to data from the Mortgage Bankers Association. This increase, the highest since 2000, has negatively impacted the number of home-purchase applications, which have dropped to one of the lowest levels in decades.

The escalating borrowing costs are exacerbating the already strained housing market, which is currently one of the least affordable in history. Despite the high financing costs, home prices continue to soar due to a limited supply of homes on the market. This shortage is partly due to homeowners’ reluctance to move in the current high-rate environment, as they would lose the lower mortgage rates they secured years ago.

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To address the housing shortage, builders have been offering incentives to lure potential buyers to the new construction market. However, the high borrowing costs limit the demand they can generate. The overall number of mortgage applications, including refinancing activities, has also decreased.

Federal Reserve Chair Jerome Powell has indicated that the elevated borrowing costs are likely to persist, and could potentially increase further if inflation does not return to its 2% target. The weekly survey, which has been conducted since 1990, gathers data from mortgage bankers, commercial banks, and thrifts, covering over 75% of all retail residential mortgage applications in the US.

Read more at Bloomberg