Stronger economic data has led to a surge in mortgage rates, pushing them past 7% for the first time since December. This increase comes after a sharp jump in rates following a positive January employment report and a high monthly manufacturing report. Mortgage rates have been on a rollercoaster ride since the summer, briefly reaching a 20-year high of 8% in October before sharply falling. These rates are influenced by the yield on the 10-year Treasury, which is impacted by the Federal Reserve’s assessment of the economy.
The recent spike in rates is not surprising considering the market’s overly optimistic outlook on the Fed rate cut. The Fed has emphasized that economic data will play a crucial role in its decision-making, and recent data, such as the jobs report, has been unfavorable for rates. As rates fell over the past few months, buyers started returning to the market, resulting in a slight uptick in homes for sale. However, total inventory remains historically low, leading to high competition and stubbornly high home prices.
2023 was the worst year for home sales since 1995, primarily due to high prices and limited supply. Experts predict that 2024 will see an improvement in the housing market. While the strong job market is positive for the upcoming spring buying season, it also means that mortgage rates are unlikely to decrease significantly. Mortgage applications for home purchases had been steadily rising but declined recently as rates increased. With the spring housing market approaching, rates play a crucial role, especially considering the high and continuing rise in home prices.
The median price of an existing home sold in December 2023 was $382,600, marking a 4.4% increase from the previous year. This price gain was observed consistently for six consecutive months, resulting in a record-high median price of $389,800 for the full year. Affordability is heavily influenced by monthly payments, which are greatly impacted by even small rate swings. A half percentage point difference can cost or save a buyer over $200 per month on a median-priced home.
Looking ahead, the future of rates in 2024 is uncertain and dependent on several factors. If economic data mirrors the recent jobs report, rates will struggle to fall below 7%. However, inflation is an even more critical factor than the labor market. If inflation remains cooler than expected, it could balance the outlook for rates.
In conclusion, the recent surge in mortgage rates above 7% is a result of stronger economic data. The housing market experienced a decline in sales in 2023 due to high prices and limited supply. While there has been a slight increase in homes for sale, total inventory remains historically low. Affordability is a concern with rising home prices and even small rate swings having a significant impact on monthly payments. The future of rates in 2024 is uncertain and depends on economic data and inflation levels.
