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Mortgage interest rates are rising on expectations that the US Federal Reserve (Fed) will not cut interest rates anytime soon.
Washington
CNN
—
The U.S. home price crisis widened this week as mortgage rates soared, surpassing a key benchmark of 7%.
30-year fixed-rate mortgages averaged 7.10% in the week ending April 18, up from 6.88% the previous week, according to Freddie Mac data released Thursday. A year ago, the average 30-year fixed rate was 6.39%.
The 7% break represents a psychological threshold that has yet to be crossed this year, adding to the pressure that will hit the U.S. housing market during the crucial spring home-buying season.
Mortgage interest rates are rising on expectations that the US Federal Reserve (Fed) will not cut interest rates anytime soon. Although the Fed does not directly set mortgage rates, its actions do affect interest rates, and with inflation still at high levels, the Fed has put policy on hold.
“With interest rates trending higher, potential homebuyers are looking to buy before rates rise further or to buy in hopes of lower rates later this year,” Sam Cater, Freddie Mac's chief economist, said in a statement. I am deciding whether to refrain from doing so.”
In a separate report, the National Association of Realtors said U.S. home sales fell sharply in March, a sign that homebuyers are taking a wait-and-see approach as they battle a tough housing market.
Fed officials have already said they expect to cut interest rates less this year than previously expected, based on recent economic data showing that progress in inflation is stalling. Some economists have suggested the Fed may not cut rates at all this year, and several central bankers have even mentioned the possibility of further rate hikes.
This caused bond yields to skyrocket. Mortgage rates are tied to the benchmark 10-year U.S. Treasury yield, which rose to 4.637%, its highest level since November. The better-than-expected consumer price index in March weighed on stock markets and prompted forecasters to lower their expectations for the first interest rate cut.
If inflation stalls further or worsens further, mortgage rates could rise.
“People have calculators in front of them because buying a home is such a big decision. So if it was 7.01% it would be a mental shock, but they still typed the numbers into the calculator. So I think we're going to see if the monthly payments are manageable,” NAR Chief Economist Lawrence Yun said by phone. with reporters on Thursday.
High mortgage rates aren't the only thing holding back homebuyers., Rising housing prices nationwide are also having an impact.
The median price of existing homes last month was $393,500, up 4.8% from a year ago, NAR reported Thursday. This was the highest price ever recorded in March. Prices in February also hit record highs. Although today's housing market is tough in many ways, Americans also enjoy one of the strongest job markets in history.
Inventory shortages have been a long-standing challenge for the U.S. housing market.
It has gradually improved in recent months, with a 4.7% month-over-month increase in March and a 14.4% increase last month compared to the same month last year, according to NAR data. But overall housing supply still hasn't kept up with demand, weighing on affordability.
“For the health of the market, we definitely need more inventory,” Yun said.
Most homeowners who locked in low mortgage rates before the Fed began raising rates in 2022 prefer not to sell their homes. Yun has previously said that life changes such as marriage, divorce, and the birth of a child may eventually force homeowners to give up on waiting for mortgage rates to fall and sell their homes. Stated.
At the current pace of sales, it will take 3.2 months to run out of the current level of homes on the market, up from 2.9 months in February 2023 and 2.7 months in March.
Uncertainty also persists surrounding the historic NAR settlement announced in March, which is expected to change the way homebuyers and sellers pay real estate agents. Although not yet approved by the courts, the behavior of homebuyers and sellers was already changing even before the new rules went into effect in July.
Yun said first-time buyers have trickled back into the market over the last month, adding, “People have heard about lawsuit settlements, so buyers need to come up with additional funds to pay for professional representation. “Maybe, but we want to do it before the new rules come into effect.” ”
Potential homebuyers told CNN they hope the settlement will lower home prices and offset the pain of rising mortgage rates, but many real estate agents say there are still some unknowns. He says there are many.
“This is uncharted territory,” Chicago real estate agent Debra Dobbs previously told CNN about the potential new rules.
This story has been updated with additional developments and background.
