The average long-term U.S. mortgage rate has reached its highest level in 10 weeks, posing a setback for prospective homebuyers just as the spring homebuying season approaches. According to mortgage buyer Freddie Mac, the average rate on a 30-year mortgage rose to 6.77% this week, up from 6.64% the previous week. This is significantly higher than the rate of 6.32% recorded a year ago.
In line with the increase in mortgage rates, the 15-year fixed-rate mortgage also experienced an uptick. The average rate rose to 6.12% from 5.90% last week, and significantly higher than the 5.51% recorded a year ago.
This rise in rates is a reflection of the movements in the 10-year Treasury yield, which lenders use as a benchmark for loan pricing. Recent stronger-than-expected reports on inflation, job market, and the overall economy have raised concerns among bond investors that the Federal Reserve may delay interest rate cuts. These worries have affected the market for U.S. Treasuries, with hopes of rate cuts diminishing as inflation has declined from its peak two summers ago.
Factors such as investor expectations for future inflation, global demand for U.S. Treasuries, and the Federal Reserve's decisions on interest rates can influence the rates on home loans. 'The economy has been performing well so far this year and rates may stay higher for longer, potentially slowing the spring homebuying season,' commented Sam Khater, Freddie Mac's chief economist.
The impact of rising mortgage rates can be significant for borrowers, as it adds hundreds of dollars to their monthly costs and limits their affordability in an already challenging housing market. Furthermore, the higher rates discourage homeowners who locked in lower rates in the past few years from selling their homes. Compared to just two years ago, the average rate on a 30-year mortgage remains significantly higher at 3.92%.
While there has been a slight decrease in financing costs since October, when the average rate hit 7.79%, the highest level since late 2000, many economists still project that mortgage rates will continue to decline this year. Their forecasts generally indicate that the average rate on a 30-year home loan will hover around 6% by the end of the year.
This rise in mortgage rates, coupled with a shortage of available homes, has kept the U.S. housing market in a slump for the past two years. Sales of previously owned homes tumbled 18.7% from 2022 and reached their lowest point in nearly 30 years.
In summary, the recent increase in the average long-term U.S. mortgage rates poses challenges for prospective homebuyers as they face higher costs and limited affordability in an already strained housing market. However, the housing market is still expected to revive slowly throughout the year, with economists predicting a decline in mortgage rates.
