by
Washington, D.C
CNN
—
Mortgage rates have rocketed for the fourth straight week as inflation concerns remain.
The 30-year fixed-rate mortgage averaged 6.65% for the week ended March 2, up from 6.5% the week before, according to data from Freddie Mac released on Thursday. A year ago, the 30-year fixed rate was 3.76%.
Rates trended down after hitting 7.08% in November but are now rising again, up 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 is likely to raise its benchmark interest rate further.
“Earlier in the year, the 30-year fixed-rate mortgage fell on expectations of slower economic growth, inflation and monetary easing,” said Sam Khater, Freddie Mac’s chief economist. “However, with continued economic growth and persistent inflation, mortgage rates have boomeranged and are slowly creeping up to 7%.”
Lower interest rates in January brought buyers back into the market, Khater said.
“Now that rates are rising, it’s hampering affordability and making it harder for potential buyers to trade, particularly repeat buyers with existing mortgages at less than half 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 are paying back 20% and have excellent credit ratings. Many buyers who invest less upfront or have less than ideal credit scores pay more than the average rate.
The reference rate continued to rise, building on the momentum of the past few weeks as the 10-year Treasury hit 4% this week.
The Fed doesn’t directly set the interest rates that borrowers pay on mortgages, but its actions affect them. Mortgage rates typically follow the 10-year Treasury yield, which moves based on a combination of anticipation of Fed action, what the Fed is actually doing, and investor reactions. When government bond yields rise, mortgage rates rise too; when they fall, mortgage rates tend to follow.
“Investors expect inflation to stay elevated for longer, forcing the Federal Reserve to raise interest rates further,” said George Ratiu, senior economist at Realtor.com. “The Fed has signaled that it sees its monetary tightening having an impact on price growth, but with a strong labor market, wages are keeping consumer spending going.”
Meanwhile, Ratiu said, consumers have taken on a record amount of debt, including mortgage, personal, auto and student loans.
“The personal savings rate has fallen significantly since the pandemic peak as high prices have squeezed household budgets,” he said. “As interest rates rise, financial strains are expected to increase, making consumer choices more difficult in the coming months.”
The brief spike in mortgage and home buying in January when interest rates fell has ended, and mortgage applications fell to a 28-year low last week, according to the Mortgage Bankers Association.
“The recent rise in mortgage rates has caused a drop in purchase applications, with activity falling for three straight weeks,” said Bob Broeksmit, CEO of MBA. “Following solid gains in buying activity early in 2023, higher interest rates, continued inflationary pressures and economic volatility are making some prospective home buyers reluctant to enter the housing market.”
Rates are trending higher again and could even hit 7% again in the next few months, Ratiu said.
“For real estate markets, rising interest rates mean higher mortgage payments and compounding the affordability challenge just as we enter the crucial spring home buying season.”
