Potential homebuyers are facing soaring housing costs as average long-term mortgage rates in the U.S. rose above 7% this week, the highest level in nearly five months.
Mortgage buyer Freddie Mac announced Thursday that its average interest rate on 30-year mortgages rose to 7.1% from 6.88% last week. A year ago, the average interest rate was 6.39%.
Rising mortgage rates could add hundreds of dollars in additional costs to borrowers each month, and the U.S. housing market remains constrained by relatively few homes for sale and rising home prices. This will limit the amount that borrowers can pay.
“With interest rates trending higher, potential homebuyers are either buying before rates rise further or hold off on buying in hopes of lower rates later this year,” said Sam Cater, chief economist at Freddie Mac. I am deciding whether to do so.” “While the number of purchase applications rose slightly last week, it remains unclear how many homebuyers will be able to withstand future interest rate increases.”
After the average interest rate on a 30-year mortgage rose to a 23-year high of 7.79% in October, inflation has eased enough this year for the Federal Reserve to start lowering rates. Against this backdrop of expectations, the rate has remained below 7% since early December. Term interest rate.
Mortgage rates are influenced by several factors, including the bond market’s reaction to the Federal Reserve’s interest rate policy and movements in the 10-year Treasury yield, which lenders use as a guide to pricing mortgages.
But mortgage rates have been trending mostly higher in recent weeks, with stronger-than-expected reports on employment and inflation raising questions about how soon the Fed will decide to start lowering benchmark rates. Uncertainty pushed up bond yields.
The 10-year Treasury yield rose to about 4.66% on Tuesday, the highest since early November, after senior Federal Reserve officials indicated the central bank could keep its main interest rate on hold for some time. It reached a high level. The Fed wants more confidence that inflation is on a sustained path toward its 2% target.
As of midday Thursday, the yield was 4.64%. New data on unemployment benefit claims Also, a report showing manufacturing growth in the Mid-Atlantic region shows the U.S. economy is stronger than expected.
Mortgage rates have now risen for the third straight week, creating a setback for home buyers during this spring home buying season, which is traditionally the busiest time of the year for the housing market.
Sales of previously occupied U.S. homes fell last month as homebuyers bucked rising mortgage rates and rising prices.
Home sales rose in January and February as mortgage interest rates eased, but the average interest rate on a 30-year mortgage is still well above 5.1%, where it was just two years ago. .
Many homeowners who bought or refinanced more than two years ago are reluctant to sell or abandon fixed-rate mortgages below 3% or 4%, so the difference between current and then-current interest rates is The wide disparity helps limit the number of existing homes on the market. .
Although many economists still expect mortgage rates to moderate gradually in the second half of this year, forecasts generally predict that the average rate on a 30-year mortgage will remain above 6%.
Meanwhile, mortgage refinancing costs also rose this week. Borrowing costs for 15-year fixed-rate mortgages, which are often used to refinance long-term mortgages, rose this week, with the average interest rate rising to 6.39% from 6.16% the previous week. A year ago, the average was 5.76%, Freddie Mac said.
