This week, the average rate on a 30-year mortgage surged to its highest level in over five months, exerting upward pressure on borrowing expenses for prospective homebuyers during what is typically the housing market’s busiest period.
According to mortgage buyer Freddie Mac’s report on Thursday, the rate ascended to 7.22% from 7.17% last week. In comparison, a year ago, the rate stood at an average of 6.39%.
The recent uptick in mortgage rates translates into hundreds of additional dollars in monthly expenses for borrowers, limiting the purchasing power of homebuyers. This comes at a time when a relatively restricted inventory of homes, coupled with heightened competition for affordable properties, has propelled prices upwards.
Notably, the average rate on a 30-year mortgage has now experienced five consecutive weeks of increase, marking its highest level since November 30.
Additionally, borrowing costs for 15-year fixed-rate mortgages, favored by homeowners seeking to refinance their loans, also saw a rise this week. The average rate climbed to 6.47% from 6.44% in the previous week, and a year ago, it stood at 5.76%, as reported by Freddie Mac.
Several factors influence mortgage rates, including the reaction of the bond market to Federal Reserve interest rate policies and fluctuations in the 10-year Treasury yield, which serves as a benchmark for pricing home loans.
Despite a climb to a 23-year high of 7.79% in October, the average rate remained below 7% for much of this year until last month. This shift occurred as robust economic data and inflationary pressures tempered investor optimism regarding potential Fed interest rate cuts.
In its latest policy statement on interest rates released Wednesday, the Fed expressed its intention to refrain from rate cuts until it has “greater confidence” in a sustainable slowdown in price growth towards its 2% target. Consequently, economists anticipate that mortgage rates are unlikely to experience significant easing in the near term.
The recent surge in mortgage rates poses challenges for homebuyers navigating the spring homebuying season, which typically witnesses a substantial portion of annual home sales occurring between March and June.
In response to escalating borrowing expenses, some homebuyers are turning to adjustable-rate mortgages (ARMs), which accounted for nearly 8% of all mortgage applications last week, marking the highest level this year, as reported by the Mortgage Bankers Association on Wednesday.
