A upward-trending line graph next to a house represents rising mortgage interest rates.
Illustration by Lanette Behiry/Real Estate News

Mortgage rates jump, but debt deal should reduce pressure 

The 30-year fixed-rate mortgage surged by nearly a quarter point this week to reach the highest level since November.

June 1, 2023
3 minutes

Key points:

  • The average 30-year mortgage was 6.79% this week, up from 6.57% a week ago.
  • With a debt ceiling agreement seemingly in place, rates could start heading down in the coming weeks.
  • The rise in interest rates combined with home price increases in many markets is squeezing first-time buyers.

Mortgage interest rates surged this week to their highest level since November, but they may start trending down again as the debt ceiling crisis appears to have been averted.

The average 30-year fixed-rate mortgage was 6.79% this week, according to Freddie Mac's weekly market survey. That's up from 6.57% a week ago.

Rates were rising in recent weeks as the showdown over the federal government's debt ceiling became more intense. Mortgage rates would have spiked if the government defaulted on its debt, said Lisa Sturtevant, chief economist at Bright MLS, but with a deal seemingly in place, that pressure is reduced. 

That said, the debt ceiling agreement does not guarantee an immediate drop in mortgage rates, noted Realtor.com economist Jiayi Xu.

"Once the deal is reached, the U.S. government is expected to quickly increase issuance of Treasury bills, which has the potential to cause short-term liquidity challenges at banks, as businesses and households may reallocate their funds towards higher-yielding and relatively safer government debt," Xu said, adding that banks may need  to raise interest rates to keep attracting depositors to address this issue.

Rates trending down, but buyers are still feeling squeezed

As an indication of where rates might be headed, Mortgage News Daily on June 1 estimated the daily rate to be at 6.88%, which is down from a week ago when it was trending over 7%.

If rates do decline, Sturtevant said it will still be a rough go for buyers.

"A pullback in rates… does not mean the housing market will get easier for home buyers," Sturtevant said. "First-time home buyers, in particular, have been feeling squeezed. Part of the debt deal pushed up the resumption of student loan payments to September, [which] will hit younger people the hardest, pushing more would-be buyers out of the market." 

The recent rise in interest rates comes at a particularly tough time for buyers, who are also seeing home prices rise during the spring homebuying season. Not only is inventory low, but a strong economy is keeping prices up, said George Ratiu, chief economist at Keeping Current Matters.

Economic resilience may also lead to additional rate hikes by the Fed, said Mike Fratantoni, chief economist at the Mortgage Bankers Association. "Inflation is still running too high, and recent economic data is beginning to convince investors that the Federal Reserve will not be cutting rates anytime soon," said Fratantoni.

"The silver lining for many buyers is the fact that in markets like Seattle, San Francisco, San Diego, Portland, and Las Vegas, prices are lower than they were a year ago, reflecting a correction from the overheated peaks," Ratiu said. "At the same time, with insufficient supply and resilient demand, price momentum seems to be picking up as we move toward summer."

With mortgage rates at six-month highs, applications for mortgages continue to slow. The Mortgage Bankers Association reported a 3.7% drop in applications compared to the week before. The unadjusted purchase index is down 31% compared to a year ago.

The 15-year fixed-rate mortgage also jumped this week, averaging 6.18% according to the Freddie Mac survey. That's up from 5.97% a week ago.

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