Washington, D.C. (CNN) Mortgage rates shot up for a fourth straight week as inflation concerns persist.
Fixed-rate 30-year mortgages averaged 6.65% in the week ending March 2, up from 6.5% the previous week, according to Freddie Mac data released Thursday. A year ago, the 30-year fixed interest rate was 3.76%.
Rates trended downward after reaching 7.08% in November, but are now rising again, by about half a percentage point in a month. Robust economic data continues to indicate that the Federal Reserve is not yet done in its fight to cool the US economy and will likely continue to raise its benchmark interest rate.
“As we started the year, 30-year fixed-rate mortgages fell on expectations of lower economic growth, inflation and an easing of monetary policy,” said Sam Khater, Freddie Mac’s chief economist. “However, given continued economic growth and inflation, mortgage rates have boomeranged and are slowly rising to 7%.”
Lower rates in January brought buyers back to the market, Khater said.
“As rates rise, affordability is hindered and it becomes difficult for potential buyers to take action, particularly for repeat buyers with existing mortgages at less than half of current rates,” he said.
The average mortgage rate is based on mortgage applications Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who make a 20% down payment and have excellent credit. Many buyers who put down less money in advance or have less than ideal credit pay more than the average rate.
Inflation is expected to remain high for longer
Reference rates continued to rise, building on the momentum of recent weeks as the 10-year Treasury hit 4% this week.
The Fed does not directly set the interest rates borrowers pay on mortgages, but its actions affect them. Mortgage rates typically track the yields on 10-year U.S. Treasury bonds, which move based on a combination of anticipation of the Fed’s actions, what the Fed actually does, and investor reactions. When interest rates on government bonds rise, so do mortgage rates; when they fall, mortgage rates usually follow.
“Investors expect inflation to stay high for longer, forcing the Federal Reserve to keep raising its policy rate,” said George Ratiu, senior economist at Realtor.com. “The Fed said it sees its monetary tightening impacting price growth, but with a strong labor market, wages keep consumers spending.”
Meanwhile, Ratiu said, consumers have taken on a record amount of debt, including mortgage loans, personal loans, car loans and student loans.
“The personal savings rate has fallen significantly from the height of the pandemic as high prices have put pressure on household budgets,” he said. “With interest rates rising, financial burdens are expected to increase, making consumer choice more difficult in the coming months.”
Mortgage applications fall as rates rise
The brief surge in mortgage and home buying activity came to an end in January as interest rates fell, with mortgage applications falling to a 28-year low last week, according to the Mortgage Bankers Association.
“The recent rise in mortgage rates has led to a drop in purchase applications, with activity dropping for three straight weeks,” said Bob Broeksmit, CEO of MBA. “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.”
Rates are on the rise again and could even rise again by 7% in the coming months, Ratiu said.
“For real estate markets, the rise in interest rates means higher mortgage payments, compounding the affordability challenge just as we enter the crucial spring home buying season.”
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