The average long-term U.S. mortgage rate has climbed to its highest level since late November, posing challenges for homebuyers during the peak season for real estate transactions. According to Freddie Mac, the average rate on a 30-year mortgage increased to 7.17% from 7.1% last week and 6.43% a year ago. Similarly, 15-year fixed-rate mortgages rose to 6.44% from 6.39% last week and 5.71% a year ago.
Rising mortgage rates can significantly impact borrowers, adding hundreds of dollars to their monthly costs and limiting their purchasing power. This trend comes at a time when the housing market is already constrained by low inventory and escalating home prices.
The recent increase marks the fourth consecutive week of rising mortgage rates, reaching the highest level since November 30. Following a peak of 7.79% in October, rates had remained below 7% until early December, driven by expectations of easing inflation and potential Fed rate cuts.
Mortgage rates are influenced by various factors, including the bond market's response to Fed interest rate policies and fluctuations in the 10-year Treasury yield, which guides lenders in setting home loan rates.
The surge in mortgage rates is unwelcome news for spring homebuyers, as evidenced by a decline in sales of existing homes last month due to higher rates and prices. While lower rates boosted home sales earlier this year, the current 30-year mortgage rate remains significantly above levels from two years ago.
The gap between current and past rates has led to a 'lock-in' effect, with many homeowners reluctant to sell due to their favorable fixed-rate mortgages obtained at lower rates. This trend has contributed to limited housing inventory.
Despite challenges, homebuilders have offered incentives to offset high borrowing costs, such as covering rate reductions for buyers. This strategy has boosted sales of newly built single-family homes, which saw an 8.8% increase in March compared to the previous year.
As mortgage rates remain elevated, homebuyers are adapting to the market conditions, leading to increased sales of new homes. The real estate landscape continues to evolve in response to changing economic factors and consumer behavior.
