Mortgage rates have reached a two-month peak as inflation remains high, according to a new report. The report reveals that the average rate on the 30-year fixed mortgage has jumped to 7.14%, the highest level in two months. This increase comes as a result of a monthly government report on wholesale prices, which showed that inflation is still persistent and hotter than expected.
The rise in mortgage rates is a cause for concern for homebuyers, especially as affordability becomes an increasingly pressing issue. Buyers are already facing high home prices, and the surge in mortgage rates adds an additional burden. It is worth noting that mortgage rates had hit their last high in October before falling sharply in the following months. However, they climbed back over 7% last Friday after another government report on consumer prices came in higher than anticipated.
Matthew Graham, the chief operating officer at Mortgage News Daily, offers two perspectives on the recent rate trends. On one hand, he highlights that rates are still almost a percent lower than they were in October, which provides some solace. On the other hand, the optimism for lower rates in 2024 has now given way to skepticism.
The drop in rates at the end of last year had initially fueled optimism in the housing market. Higher interest rates, paired with soaring home prices, had sidelined buyers in the fall. However, with lower rates acting as the primary driver, sales of newly built homes surged by 8% in December, as reported by the U.S. Census Bureau. Additionally, homebuilder sentiment, based on an index from the National Association of Home Builders, has been on the rise for the past three months. Builders have noted that lower interest rates were attracting more buyer traffic to their model homes. In February’s report, builders expressed expectations that mortgage rates would continue to moderate in the upcoming months.
Alicia Huey, the Chairman of the NAHB and a home builder and developer from Birmingham, Alabama, explains the positive impact of lower interest rates on buyer traffic. She states that even small declines in interest rates produce a disproportionate positive response among likely home purchasers. While mortgage rates are still too high for many prospective buyers, Huey anticipates that pent-up demand will lead to an increase in buyers entering the marketplace if rates continue to decline this year.
Despite high home prices and a low supply of homes for sale, demand in the housing market has remained strong. However, the recent upswing in rates may deter buyers. Redfin, a national real estate brokerage, reported that when rates flattened from their declines in January, both signed contracts on existing homes and new listings weakened.
As the spring housing market approaches, President’s Day weekend is considered the unofficial start of this crucial period. The increase in rates could potentially drive buyers away, hindering the market’s growth. Nevertheless, industry experts remain hopeful that as the year progresses, mortgage rates will decline, attracting more buyers to enter the marketplace and alleviate some of the challenges caused by high home prices and limited supply.
In conclusion, the new report revealing high inflation and a two-month peak in mortgage rates has sparked concerns among homebuyers. While lower interest rates had initially driven buyer traffic and sales in the housing market, this recent increase may dampen the optimism that had prevailed. However, industry professionals are optimistic that if mortgage rates decline throughout the year, more buyers will enter the market due to pent-up demand. The coming months will be crucial for determining the trajectory of the housing market as it navigates affordability challenges and supply constraints.
