Article Summary –
The weekly average rate on a 30-year fixed-rate mortgage has climbed to 6.95%, the highest in over 19 months, while the Federal Reserve’s recent interest rate hike is expected to maintain rates at or above 7%, affecting affordability and potentially sidelining more prospective homebuyers. Rising mortgage rates, driven by factors such as inflation expectations and bond yields, continue to impact the U.S. housing market, which has been stagnant since 2022, with pending home sales showing signs of sluggishness. Despite the current rise in rates, it’s uncertain how much further they will increase, although many experts anticipate that the trend may already factor in future Federal Reserve decisions.
Prospective homebuyers hoping for a break from increasing mortgage rates might need to prepare for a prolonged wait.
The average rate on a 30-year fixed-rate home loan has been inching up for several months, reaching just under 7% this week—the highest in over 19 months.
Freddie Mac reported Thursday that the benchmark 30-year fixed-rate mortgage increased to 6.95% from 6.76% last week, compared to 6.26% a year ago.
This marks the fourth consecutive week of rising mortgage rates, with the average rate last seen at this level on Jan. 30, 2025.
Additionally, 15-year fixed-rate mortgages, popular among those refinancing home loans, climbed to 6.26% from 6.09% last week, having been at 5.41% a year earlier.
Escalating mortgage rates can add hundreds monthly to borrowing costs, reducing homebuyers’ purchasing power and potentially causing delays in home buying.
In late February, the 30-year mortgage rate briefly fell to 5.98%, its lowest since late 2022. The nearly 1% point rise since then equates to roughly $255 more monthly for a $400,000 home loan at the current rate.
The housing market has been stagnant this year, primarily due to higher borrowing costs since the U.S.-Iran conflict began in late February. Expectations of heightened inflation amid rising oil prices have driven up long-term bond yields, affecting mortgage pricing.
Factors like inflation, Federal Reserve policy, and bond-market expectations influence mortgage rates, which follow the 10-year Treasury yield. This yield, which was 3.97% in late February, surpassed 5% on Monday for the first time since 2023, sitting at 4.94% by midday Thursday.
The Federal Reserve’s recent rate hike to curb surging inflation could also elevate mortgage rates.
The Fed’s rate changes are scrutinized by bond investors, affecting the 10-year Treasury yield. Another rate increase might occur later this year.
“Higher rates will likely keep mortgage rates at or above 7%, creating psychological and financial barriers for buyers,” said Lisa Sturtevant, chief economist at Bright MLS.
The U.S. housing market has experienced a downturn since 2022 when rates began rising. Sales of pre-owned homes remain flat, at a 30-year low, slowing again last month.
The latest count of pending home sales hints at possible slower transactions in upcoming months. The National Association of Realtors reported a 0.3% rise last month but a 4.7% drop from August last year.
Increasing home prices and a shortage aggravated by years of low construction have left many unable to buy. Potential buyers closely monitor mortgage rates, which determine affordability.
A borrower’s income, credit, and other factors can influence the rate they qualify for on a 30-year mortgage, potentially above or below the current average.
The Fed’s rate hike and other elements propelling mortgage rates this year might further decelerate the housing market.
However, it’s uncertain how much further rates will climb, as their recent rise may reflect expectations of Fed rate hikes.
“This matters because it indicates how mortgage rates and the bond market might react to potential Fed hikes,” said Jake Krimmel, senior economist at Realtor.com.
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