Washington
CNN
—
Mortgage rates rose further to 7%, rising for a fifth straight week, as the Federal Reserve suggested rate hikes would continue amid persistent inflation.
The 30-year fixed rate mortgage averaged 6.73% in the week ended March 9, from 6.65% the previous week, according to Freddie Mac data released Thursday. A year ago, the 30-year fixed rate was 3.85%.
After the 2022 high of 7.08% in November, rates have been on a downward trend. However, they started to rise again in February, rising half a percentage point last month. Strong economic data continues to suggest that the Federal Reserve is not finished in its battle to cool the US economy and will likely continue to raise its key lending rate.
“Mortgage rates continue their upward trajectory as the Federal Reserve signals a more hawkish stance on monetary policy,” said Sam Khater, chief economist at Freddie Mac. “Overall, consumers are spending in areas that are not sensitive to interest rates, such as travel and eating out. However, rate-sensitive sectors such as housing continue to be adversely affected. As a result, would-be homebuyers continue to face the complex challenges of affordability and low inventory.”
The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who put 20% down and have excellent credit.
Coming into 2023, inflation seemed to be easing. However, strong employment numbers and a rising consumer price index revealed that inflation remains stubbornly high.
In testimony to Congress on Tuesday, Federal Reserve Chairman Jerome Powell said the central bank will likely raise interest rates higher than expected to fight inflation.
“While Fed officials said last month that a smaller increase in the federal funds rate would help create a soft landing for the economy, Powell’s testimony on Tuesday made it clear that the central bank is poised to return to a faster rate of interest rate hikes. interest rates if February’s incoming economic indicators remain strong,” said Jiayi Xu, economist at Realtor.com.
That suggests investors were not fully prepared and worried about the Fed’s upcoming actions, he said.
The Fed’s next rate-setting meeting is scheduled for March 21-22, where a half point rate hike is now on the table.
“Uncertainty about how high interest rates will go and how long they will stay high makes it difficult for investors to make well-informed decisions,” Xu said. “Therefore, it is important to closely monitor the latest developments from the Federal Reserve.”
The Fed does not set the interest rates borrowers pay directly on mortgages, but its actions affect them. Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation of the Fed’s actions, what it actually does and investor reactions. When bond yields rise, so do mortgage rates. When they go down, mortgage rates tend to follow.
Rising mortgage rates have put a damper on the spring selling season.
While mortgage applications rose slightly last week after three weeks of declines, according to the Mortgage Bankers Association, activity is muted.
“Even with this jump in activity, both purchase and refinance applications remain well below last year’s levels, when interest rates were much lower,” said Bob Broeksmit, MBA president and CEO. “The recent increase in mortgage rates, right at the start of the busy spring buying season, could cause prospective buyers to delay their decisions until interest rates moderate.”
Homebuyer sentiment returned to historic lows in February, according to a Fannie Mae survey. After three straight months of improvement, sentiment fell, returning the index closer to the survey’s all-time low set last October. The most notable declines in sentiment were those related to job security and home selling conditions.
“While the current housing market may not look promising for sellers due to factors such as a growing number of unsold homes, longer time on the market and slowing price growth due to high mortgage rates, there are still opportunities to be found,” Xu stated. .
For example, Xu said, recent sales data show that the share of first-time home buyers is up compared with a year ago.
“As a result, sellers with starter homes may see strong demand and retain some bargaining power,” he said.
In addition, he said, the continued presence of hybrid work models offers homebuyers more flexibility in where they choose to live. Instead of competing for a home in denser, more central areas, some buyers will move farther from work if they don’t commute.
“This trend could make homes with easy access to public transportation more attractive to home buyers, which, in turn, boosts bargaining power for sellers,” Xu said.
For sellers who are also buyers, he said, “it’s important to note that they can still leverage their record equity, even if they have to adjust their expectations to lower asking prices.”