Mortgage rates climbed for the third week in a row, inching closer to 7%.
The 30-year fixed-rate mortgage averaged 6.9% in the week ending February 22, up from 6.77% the previous week, according to data from Freddie Mac released Thursday. A year ago, the average 30-year fixed-rate was 6.5%.
Mortgage rates have been making smaller moves over the past two months, after coming down from last year’s high, 7.79%, reached in October. The average rate hovered near 6.6% for more than a month, which brought improved affordability for homebuyers who’ve been struggling in one of the least affordable markets in decades.
But in recent weeks, as the market processes indications from the Federal Reserve that it will not cut its benchmark rate until later this year, mortgage rates have trended higher.
“Strong incoming economic and inflation data has caused the market to re-evaluate the path of monetary policy, leading to higher mortgage rates,” said Sam Khater, Freddie Mac’s chief economist in a statement.
While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them. Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions.
Historically, Khater said, the mix of a strong economy and higher rates didn’t meaningfully impact the housing market.
But this cycle is different, he said, adding, “housing affordability is so low that good economic news equates to bad news for homebuyers, who are sensitive to even minor shifts in affordability.”
Kink in spring homebuying
As the average mortgage rate move toward 7%, many would be homebuyers who were expecting rates to cool off this year, are balking at the reversal.
But statements from Federal Reserve officials indicate that while they have acknowledged the likelihood of rate cuts in 2024, they just don’t want to rush it, said Jiayi Xu, economist for Realtor.com.
“In essence, Federal Reserve officials are seeking more concrete evidence of sustained improvement in inflation before making any changes,” she said.
Looking forward, she said, the release of updated economic projections and Chair Powell’s subsequent discussion of these projections may provide more insights into the Fed’s approach. The next meeting of the Federal Open Market Committee will be in March.
For now, would-be homebuyers may be holding back.
This time of year typically sees a ramping up of new listings in housing markets. New listings last week were 9.5% above last year’s levels, according to Realtor.com.
But this may not be translating into new buyers, with mortgage applications dropping 10.6% in the week ending on February 16 from the week before according to the Mortgage Bankers Association.
“The recent increase in mortgage rates has the potential to slow the market by disrupting the plans of many buyers, especially in a market where a significant number of consumers are anticipating lower mortgage rates, not higher,” said Xu.
Source: Orange County Register
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