The sturdy realm of U.S. real estate observed a dampening impact this week as the average long-term mortgage rate reached its zenith since the closing moments of November, throwing a wrench into the gears of the usually bustling spring house hunting season.
The average interest swirling around a 30-year mortgage crept up to 7.17% from its earlier foothold at 7.1% in the previous week, according to the words of mortgage titan, Freddie Mac. A mere twelve months ago, the rates barely touched 6.43%.
In the same breath, 15-year fixed-rate mortgages, the darlings of homeowners looking to refinance, saw a slight surge in borrowing rates. This week’s climb sent the average interest rate to 6.44%, a small but notable ascension from last week’s 6.39%. A slide back into the annals of last year reveals a somewhat gentler figure, at only 5.71%.
Increased mortgage rates can burden borrowers with additional hundreds of dollars every month, thus shrinking the budget potentiality of those wishing to own homes. This comes at a time when the American housing market finds itself straitjacketed by a paucity of homes for sale and a concurrent upward creep of house prices.
Marking a spectral trend that has haunted property observers for four consecutive weeks, the average rate on a 30-year mortgage has now risen once more. This recent hike now mirrors the rate seen on November 30, measuring a substantial 7.22%.
A spike in October saw the average 30-year mortgage rate scale a breath-taking 23-year perch at 7.79%, only to descend below 7% in the early turnings of December. This descent was prompted by hopes that inflation would be cultivated to a manageable level, thus enabling the Federal Reserve to truncate its short-term interest rate.
Interestingly, the mortgages are not self-setting but indeed dance to the tune of several key factors. These include the bond market’s reaction to Federal Reserve’s interest rate policy and fluctuations in the 10-year Treasury yield, which serves as a roadmap for lenders when defining home loan prices.
With the reports of this year providing documented evidence of persistent inflation, home loan rates have trudged relentlessly upward. Doubts have been aired regarding the Federal Reserve’s decision to cut its benchmark interest rate, and as a result, bond yields have consequently been thrust upward.
Recently, even leading figures within the Federal Reserve have acknowledged that they might need to maintain these higher interest rates until they are assured that inflation is steadily subsiding toward their objective of 2%.
This surge in mortgage rates have cast long shadows on the spring homebuying season, causing the sales of previously occupied U.S. homes to feel the pinch as prospective homeowners grapple with the reality of elevated mortgage rates and soaring house prices.
Easing the mortgage rates had breathed some life into home sales in January and February. But the 30-year mortgage rate still looms large compared to the 5.1% seen two years prior. This disparity between past and present continues to limit the availability of pre-occupied homes, as homeowners who purchased or refinanced over two years ago recoil at the prospect of relinquishing their enviable sub-3%-4% fixed-rate mortgages, an eventuality labeled as the “lock-in” effect by real estate experts.
Illustrating the bleak outlook, Bob Broeksmit, CEO of the Mortgage Bankers Association, explained, “We are seeing the lock-in effect continue to suppress existing inventory levels as many homeowners are hesitant to sell and buy at a higher price and mortgage rate.”
The softening blow of increased borrowing costs has been cushioned in part by homebuilders who have offered incentives; for instance, shouldering the expense to shrink the mortgage rate absorbed by homebuyers. This proactive approach has stirred up sales of new single-family homes, marking an increase of 8.8% in March year-over-year.
Sam Khater, Freddie Mac’s chief economist, noted, “With rates lingering at high levels, many homebuyers are making adjustments, as indicated in this week’s report — sales of newly-built homes just witnessed their biggest jump since December 2022.”
