Rising mortgage rates reflect market anxiety over rising prices. After four weeks of reductions, mortgage rates increased based on speculation that the Federal Reserve would continue raising its benchmark lending rate to combat inflation.
Freddie Mac said the average rate for a 30-year fixed-rate mortgage increased to 6.12% on February 9 from 6.09% the previous week. Rates for 30-year fixed loans was 3.69 percent a year ago.
Mortgage rates, rising throughout much of 2022, began a downward trend in November due to growing evidence from various sources that inflation may have reached its peak.
It was reported last week by the Bureau of Labor Statistics that the US economy created a staggering 517,000 new jobs in January. On average, experts predict between 185,000 and 195,000 new employment will be made. The unexpected result complicates the Fed’s historic and aggressive efforts to calm the job market and drive inflation down through rate hikes.
Federal Reserve Chairman Jerome Powell warned at a Tuesday’s Economic Club of Washington speech that the central bank “may have to do more and raise rates more than is priced in” due to the robust economy.
According to George Ratiu, Realtor.com’s manager of economic analysis, this discord between investor expectations and actual economic data will persist across the financial markets for several months.
For one thing, “investors have been expecting the economy to slide into a recession following the Fed’s rate hikes,” Ratiu explains, “thinking that increased borrowing costs will make it even more difficult for consumers to continue spending on credit.” However, “the combination of a solid employment market and epidemic savings means that Americans have maintained a stable consumption pace even as they shifted their concentration from commodities to services.”
However, he warned that as long as inflation remains a problem, homeowners’ mortgage rates will remain unpredictable.
Ratiu predicted that mortgage rates would fluctuate within a tight band for the foreseeable future.
Mortgage holders are adjusting to the new rate landscape.
Homes sales fell dramatically in 2022 due to the increased cost of mortgage financing. But as interest rates have dropped from their 2022 high of over 7%, which was set in mid-November this year, more buyers have been active recently.
Mortgage applications have dropped by 58% since November, despite decreasing rates. This is because rates are roughly double what they were a year ago.
According to MBA vice president and deputy chief economist Joel Kan: “Purchase activity that was put on hold last year due to the quick runup in rates is gradually coming back as rates ease and housing demand remains strong, driven by supportive demographics and the ongoing strength of the job market.”
According to MBA President and CEO Bob Broeksmit, “Affordability — especially at the lower end of the market — continues to be an issue.” Still, the market is expected to continue to rebound heading into spring.
As potential homeowners try to wrap their heads around rates at the lower 6% level, the impact of the Federal Reserve’s possible future moves could be more transparent.
The psychological shock of the 2022 rate spike is fading for purchasers, leading to a beneficial adjustment in expectations, according to Ratiu, and interest rates are still running considerably below the 7% range we saw in the autumn.
Freddie Mac calculates the national average mortgage rate using data from mortgage applications submitted by thousands of lenders. Only those who paid down 20% and have stellar credit scores were included in the survey. Many buyers may pay more than the average rate since they made smaller down payments or had less-than-perfect credit.