According to Mortgage News Daily, the average 30-year fixed mortgage rate rose back above 7% on Thursday, reaching to 7.1%.
Bond yields are rising as investors become increasingly concerned that inflation will not abate.
Mortgage rates closely track the yield on the 10-year US Treasury note.
“Rates continue to move at the suggestion of economic data, and the data hasn’t been friendly. This is scary considering this week’s data is insignificant compared to several upcoming reports,” said Matthew Graham, chief operating officer at Mortgage News Daily.
Rates surpassed 7% in October of last year. That was the highest level in over two decades. They backed off in the months that followed, as inflation appeared to be slowing. Rates had reached 6% by mid-January, causing a significant increase in the number of purchasers putting contracts on existing houses.
According to the National Association of Realtors, pending home sales increased by an unexpectedly high 8% from December. But the last four weeks have been difficult. Rates have risen by 100 basis points since the beginning of February.
The monthly payment, including principle and interest, for a buyer purchasing a $400,000 home with 20% down on a 30-year fixed loan is now around $230 higher than it would have been a month ago. When compared to a year ago, when rates were around 4%, today’s monthly payment is roughly 50% more.
As a result, mortgage applications from homebuyers have been declining for the previous month, reaching a 28-year low last week, according to the Mortgage Bankers Association.
“The recent jump in mortgage rates has led to a retreat in purchase applications, with activity down for three straight weeks,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “After solid gains in purchase activity to begin 2023, higher rates, ongoing inflationary pressures, and economic volatility are giving some prospective homebuyers pause about entering the housing market.”
With interest rates marginally lower at the start of this year, it appeared that the housing market was beginning to revive just in time for the normally busy spring season. But, the recovery has already stopped, and rising interest rates are only half of the story.
“Consumers have taken on a record amount of debt, including mortgage, personal, auto, and student loans,” noted George Ratiu, senior economist at Realtor.com. “With rising interest rates, financial burdens are expected to increase, making consumer choices more difficult in the months ahead.”
While the trajectory for rates now appears to be higher again, it is not necessarily guaranteed for the long term.
“If the bigger-ticket data has a friendlier inflation implication, we could see a bit of a correction. Unfortunately, traders will be hesitant to push rates aggressively lower until they have several successive months pointing to meaningfully lower inflation,” added Graham.