The average 30-year fixed rate mortgage rate jumped more than 7% on Thursday to 7.1%, according to Mortgage News Daily.
Growing fears that inflation may subside are pushing bond yields higher. Mortgage rates roughly track the 10-year US Treasury yield.
“Rates continue to move at the suggestion of economic data, and the data hasn’t been friendly. It’s scary given that this week’s data is insignificant compared to several reports to come,” Matthew said. Graham, COO of Mortgage News Daily.
Rates topped 7% last October. It was the highest level in over 20 years. But they fell in the following months as inflation seemed to slow. By mid-January, rates were hitting 6%, leading to a surge in the number of buyers signing contracts on existing homes.
According to the National Association of Realtors, sales of so-called pending homes unexpectedly rose 8% from December. But the last four weeks have been difficult. Rates have risen 100 basis points since early February.
For a buyer buying a $400,000 home with a 20% down payment on a 30-year fixed loan, the monthly payment, including principal and interest, is now about $230 per month more than wouldn’t have been a month ago. Compared to a year ago, when rates were around 4%, today’s monthly payment is about 50% higher.
As a result, mortgage applications from homebuyers have fallen over the past month and last week hit their lowest level in 28 years, according to the Mortgage Bankers Association.
“The recent jump in mortgage rates has resulted in lower purchase requests, with activity down for three straight weeks,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “After strong gains in buying activity at the start of 2023, higher rates, continued inflationary pressures and economic volatility are causing some potential buyers to think twice before entering the housing market.”
At the start of this year, with slightly lower rates, it looked like the housing market was beginning 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 took on a record amount of debt, including mortgages, personal, auto and student loans,” noted George Ratiu, senior economist at Realtor.com. “As interest rates rise, finance costs are expected to rise, making consumer choices more difficult in the months ahead.”
If the rate trajectory now appears to be rising again, it is not necessarily guaranteed in the long term.
“If the most important data has a more favorable implication for inflation, we could see a slight correction. Unfortunately, traders will be reluctant to cut rates aggressively until they have several successive months indicating a significant drop in inflation,” Graham added.