The average rate on the 30-year fixed mortgage rose more than 7% to 7.1% on Thursday, according to Mortgage News Daily.
Growing fears that inflation will not cool are driving up bond yields. Mortgage rates loosely track the yield on the US 10-year Treasury.
“Rates continue to move at the suggestion of economic data and the data has not been kind. This is frightening as this week’s data is insignificant compared to several upcoming reports,” said Matthew Graham, chief operating officer at Mortgage News Daily.
Rates went up more than 7% in October last year. That was the highest level in more than 20 years. But they retreated in the following months, as inflation seemed to ease. By mid-January, rates were 6%, leading to a large increase in buyers signing contracts for existing homes.
According to the National Association of Realtors, so-called pending home sales rose an unexpectedly strong 8% from December. But the past four weeks have been tough. Since the beginning of February, rates have increased by 100 basis points.
For a buyer buying a $400,000 home with a 20% discount on a 30-year fixed loan, the monthly payment, including principal and interest, is now about $230 per month more than it was 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, reaching a 28-year low last week, according to the Mortgage Bankers Association.
“The recent rise in mortgage rates has led to a slump in purchase applications, with activity dropping for three consecutive weeks,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “After solid gains in purchasing activity to begin 2023, higher rates, continued inflationary pressures and economic volatility are causing some potential homebuyers to be hesitant to enter the housing market.”
At the beginning of this year, with slightly lower rates, it appeared that the housing market had started 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 loans, personal loans, car loans and student loans,” said George Ratiu, senior economist at Realtor.com. “With interest rates rising, financial burdens are expected to increase, making consumer choice more difficult in the coming months.”
While the trajectory for rates now appears to be higher again, this is not necessarily guaranteed for the long term.
“If the larger numbers have a friendlier inflation implication, we could see a small correction. Unfortunately, traders will be hesitant to aggressively lower rates until they have several consecutive months that indicate meaningfully lower inflation,” added Graham. .