US Mortgage Rates Rise Following Strong Employment and Inflation Reports
After months of stagnation, US mortgage rates have experienced a significant increase due to a series of robust employment and inflation reports. According to data from Freddie Mac, the 30-year fixed-rate mortgage averaged 6.77% in the week ending February 15, up from 6.64% the previous week. This marks a notable rise from the average rate of 6.32% recorded a year ago.
Sam Khater, Freddie Mac’s chief economist, attributed the surge in mortgage rates to the unexpected rise in consumer prices. He stated, “The economy has been performing well so far this year and rates may stay higher for longer, potentially slowing the spring homebuying season.”
The impact of these rising rates is already being felt in the housing market. Mortgage applications for home purchases in 2024 have declined in more than half of all states compared to the previous year. Bob Broeksmit, CEO of the Mortgage Bankers Association, explained that the volatility in mortgage rates has led to a 2% drop in applications.
The strong employment data has been a key factor contributing to the increase in mortgage rates. In January alone, the US economy added a staggering 353,000 jobs, almost double the initial expectations. Broeksmit emphasized that an increase in home sales this spring would require more homes on the market and lower mortgage rates.
The average mortgage rate is determined based on data from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. It is important to note that individual buyer rates may vary.
In addition to employment figures, the Consumer Price Index data for January revealed that inflation slowed less than anticipated. Over the past two years, the housing market has faced significant challenges, with sales dropping to their lowest level in 28 years. Experts and market participants are eagerly awaiting a potential rate cut from the Federal Reserve, which would signal that inflation is under control. However, Fed Chair Jerome Powell has indicated that a rate cut is unlikely at the next policy meeting due to the continued strength of the economy.
Hanna Jones, a senior economic research analyst at Realtor.com, stated, “As a result, mortgage rates are likely to continue to hover in the high-6% range until more definitive progress has been made towards the central bank’s goal of 2% inflation.”
While the Federal Reserve does not directly set mortgage interest rates, its actions have a significant influence on them. Mortgage rates tend to follow the yield on 10-year US Treasuries, which are affected by expectations about the Fed’s actions, actual policy decisions, and investor reactions, particularly in relation to inflation.
Buyers and builders have been hoping for lower rates to alleviate the challenges of the current market. Although rates have fallen since reaching a 23-year high of 7.79% in October, they have remained relatively stable around 6.6% since mid-December. This slight decrease has provided some relief for homebuyers struggling in one of the least affordable markets in decades.
Lisa Sturtevant, chief economist at Bright Multiple Listing Service, suggested that waiting for rates to fall further later in the year could be a viable option for some buyers. However, she cautioned that inventory remains tight and prices continue to rise in most local markets. Therefore, acting promptly when finding a suitable home may be a wise decision.
While there has been a slight increase in the supply of homes compared to last year, inventory levels remain historically low. This imbalance between buyer demand and seller activity could potentially drive prices even higher if demand outpaces supply.
Nevertheless, there are signs of improvement in the housing market as homebuying and selling activity begins to pick up ahead of the peak spring season. The National Association of Home Builders reported that homebuilders’ sentiment is at its highest level since August of the previous year. Alicia Huey, NAHB chairman, expressed optimism, stating that even small declines in interest rates can have a significant positive impact on potential homebuyers.
The addition of new construction serves as a relief valve for the low inventory in the existing home market. The prospect of lower mortgage rates throughout the year, coupled with the increased availability of homes, may encourage more buyers to enter the market this spring.
In conclusion, the recent rise in US mortgage rates can be attributed to strong employment and inflation reports. While this may slow down the spring homebuying season, experts remain hopeful that lower rates and increased inventory will stimulate the housing market. Buyers are advised to carefully consider their options, as waiting for further rate decreases may be beneficial for some, while others may find it advantageous to act promptly due to limited inventory and rising prices.