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The average rate on the 30-year fixed mortgage jumped back more than 7% on Thursday, rising to 7.1%, according to Mortgage News Daily.
Growing fears that inflation is not cooling off are pushing bond yields higher. Mortgage rates clearly follow the yield on the 10-year US Treasury.
“Rates continue to move on the recommendation of economic data, and the data has not been friendly. This is alarming because this week’s data is very small compared to several reports to come,” said Matthew Graham, chief operating officer at Mortgage News Daily.
Rates exceeded 7% last October. That was the highest level in more than 20 years. But they pulled back in the months that followed, because inflation seemed to be abating. By mid-January rates were touching 6%, prompting a huge jump in buyers signing contracts on existing homes.
So-called home sales rose an unexpectedly strong 8% from December, according to the National Association of Realtors. But the last four weeks have been rough. Rates have moved 100 basis points higher since early February.
For a buyer buying a $400,000 home with 20% down on a 30-year fixed loan, the monthly payment, including principal and interest, is now about $230 per month more than it would have been a month ago. Compared to a year ago, when rates were in the 4% range, the monthly payment today is about 50% higher.
As a result, mortgage applications from home buyers have been falling for the past month and last week reached a 28-year low, according to the Mortgage Bankers Association.
“The recent jump in mortgage rates has led to a pullback in purchase applications, with activity down for three straight weeks,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “After strong gains in the buying activity to begin in 2023, higher rates, continued inflationary pressures, and economic volatility are giving some home buyers pause about entering the housing market.”
At the beginning of this year, with slightly lower rates, the housing market seemed to be starting to recover just in time for the traditionally busy spring season. But that recovery has now stalled, and rising rates are only part of the picture.
“Consumers have taken on a record amount of debt, including mortgage, personal, auto and student loans,” said George Ratiu, senior economist at Realtor.com. “With interest rates rising , financial liabilities are expected to rise, making consumer choices more difficult in the coming months.”
Although the path for rates now seems to be higher again, that is not guaranteed in the long term.
“If the larger ticket data has a more friendly inflationary effect, we could see some correction. Unfortunately, traders will be reluctant to push rates lower until several months in a row indicate lower inflation.
