Mortgage Rates Ascend Amidst Homebuyer Hesitation

In an ongoing trend, mortgage rates have surged for the fourth consecutive week, edging closer to the 7% mark just as the peak homebuying season unfolds. According to data released by Freddie Mac on Thursday, the 30-year fixed-rate mortgage averaged 6.94% for the week ending February 29, a slight uptick from the previous week’s 6.90%. Comparatively, a year ago, the average 30-year fixed-rate stood at 6.65%. Sam Khater, the chief economist at Freddie Mac, remarked that mortgage rates have reached a two-month high, flirting with the 7% threshold once again. This upward trajectory is impacting the homebuyer momentum, already fragile as the market enters the spring season.

Market Dynamics and Influencing Factors to Mortgage rates

Following the October peak of 7.79%, mortgage rates had gradually receded. Sustaining around 6.6% for over a month, this provided a reprieve for homebuyers in a market recognized as one of the least affordable in decades. However, recent weeks have witnessed a reversal in this trend. Expectations that the Federal Reserve will delay its benchmark lending rate cut until later in the year have contributed to the current trend of rising mortgage rates. While the Fed doesn’t directly determine borrower interest rates, its actions exert influence. Mortgage rates typically align with the yield on 10-year US Treasuries, responding to a combination of speculations about the Fed’s actions, its actual decisions, and investor responses. Bob Broeksmit, president and CEO of the Mortgage Bankers Association, noted that higher-than-anticipated inflation and jobs data are adding upward pressure to mortgage rates, exacerbating challenges for aspiring homebuyers, particularly in markets with limited existing homes for sale.

Homebuyer Response and Industry Impact

The surge in mortgage rates has triggered a notable response from potential homebuyers. Mortgage applications plummeted by 5.6% last week compared to the previous week, signaling a slowdown in activity. Mike Fratantoni, the chief economist at the Mortgage Bankers Association, attributed this decline to the impact of higher rates, noting that applications for home purchases are lagging 12% behind last year’s pace. As listings struggle to materialize and mortgage rates move against the hopes of prospective buyers, the real estate market faces a challenging landscape. A glimmer of hope lies in the uptick in applications for new construction homes, which saw a 19% increase in January, according to a separate MBA builder survey. Nonetheless, Fratantoni emphasizes that the shortage of existing inventory remains a primary constraint on purchase volume, exacerbated by mortgage rates hovering around the 7% mark.