Following a series of solid job and inflation figures, US mortgage rates surged upward on Thursday, after being unchanged for months.
Freddie Mac data shows that the 30-year fixed-rate mortgage increased from 6.64% the week before to 6.77% in the week ending February 15. About thirty months ago, the typical fixed-rate mortgage was 6.32 percent.
“Mortgage rates increased this week, on the heels of consumer prices rising more than expected,” said Sam Khater, chief economist at Freddie Mac.
In a statement, Khater hinted that the spring homebuying season might be impacted by the continued strength of the economy and the possibility that interest rates would remain elevated for an extended period.
More than half of the states have seen a decline in homebuyer mortgage applications thus far in 2024 compared to the same period last year, according to Khater.
Although inflation slowed last month, some price spikes are still causing discomfort.
A 2% decline in applications was caused by “mortgage rates have been volatile due to strong employment data,” said Bob Broeksmit, CEO of the Mortgage Bankers Association, in a press statement.
According to the most recent monthly employment snapshot from the Labor Department, the US economy created an impressive 353,000 jobs in January, which was over double the expected number.
Adding more houses to the market and lowering mortgage rates would be the key factors, according to Broeksmit, that would cause a significant increase in home sales this spring.
Mortgage applications received by Freddie Mac from hundreds of lenders nationwide are the basis for the average mortgage rate. Borrowers with great credit and a 20% down payment are the only ones included in the poll. You could get a different pricing from a buyer right now.
Persistently high inflation rates
As a result of the robust economy, mortgage rates are on the rise.
Inflation decreased less than anticipated last month, according to the Consumer Price Index data for January, which was issued on Tuesday, adding to the good employment results.
The property market has essentially froze, with sales falling to their lowest level in 28 years, after eleven interest rate rises in the previous two years. Many in the financial and real estate sectors are holding their breath for the Federal Reserve to do anything other than remain constant and lower its benchmark lending rate, which would indicate that inflation has reached its objective.
Chair Jerome Powell has made it clear that the Federal Reserve would not be implementing a rate decrease at its upcoming policy meeting due to the robustness of the incoming economic data.
“A rate cut is unlikely in March,” said Hanna Jones, senior economic research analyst at Realtor.com, referring to the latest inflation and employment data that showed growth in January. “Until there is clear movement towards [the central bank’s objective of] 2% inflation, mortgage rates are expected to stay around 6%.”
Although the Federal Reserve does not have direct control over mortgage interest rates, its policies do have an impact on them.
Mortgage rates are closely tied to the yield on 10-year US Treasuries. The yield on these bonds fluctuates due to investors’ responses to the Federal Reserve’s activities, both expected and real, as well as factors such as inflation.
Those in the market for a new home or a cheaper builder
Mortgage rates soared to 7.79% in October, marking a 23-year high. Homebuyers have been fighting for affordability in one of the most expensive markets in decades, but prices have dropped and have been hovering around 6.6% since mid-December.
With a 20% down payment and current interest rates, the average borrower would pay $2,028 per month for a property with a median price of $390,000 in 2023. The identical property would have cost $2,244 per month last October when rates were one percentage point higher, so that’s a savings of about $200.
However, not everyone is happy with how slowly rates have been falling. According to Bright Multiple Listing Service chief economist Lisa Sturtevant, potential buyers may be hesitant if rates start to rise again.
Some purchasers may be better off waiting for rates to drop more later this year, she said. But supplies won’t expand, therefore prices in most areas will keep going up. When they locate a house that fits their requirements, some buyers may decide it’s best to move quickly.
The housing supply is still at a historically low level, notwithstanding a little rise in January compared to the previous year.
The spring real estate market has officially begun. Is everything set?
Due to the disparity between their existing mortgage rate of 2%, 3%, or 4% and the current market rate, many homeowners are still hesitant to sell and become buyers in this market.
According to Jones, if buyer demand increases at a quicker rate than seller activity, prices might be driven upward by this ongoing mismatch.
Ahead of the busy spring season, however, homebuying and selling activity is heating up, and minor improvements are starting to show in the housing market.
The monthly poll by the National Association of Home Builders, which was issued on Thursday, shows that homebuilders are more optimistic about rates than they have been since last August.
According to Alicia Huey, NAHB chairperson, “Buyer traffic is improving as even small declines in interest rates will produce a disproportionate positive response among likely home purchasers.”
“Although mortgage rates are still too high for a lot of potential buyers, we expect pent-up demand to lead to a surge in the number of buyers this year if rates keep going down.”
When there is a shortage of homes on the market, new development is a great way to alleviate the pressure. Possible lower mortgage rates this year and the arrival of much-needed inventory would encourage buyers to make a hasty entry into the market.
There could be more motivated purchasers in the market this spring as mortgage rates are expected to be lower compared to the autumn of 2023, according to Jones.
