Mortgage rates near 7% are stalling sales
Inventory is building as buyers stay on the sidelines, but there’s still hope for more activity as the spring shopping season gets underway.
Key points:
- The 30-year-fixed rate mortgage rose to 6.9% this week, the highest level since mid-December.
- Strong economic data could push rate cuts to later in the year.
- A drop in mortgage application activity could lead to more choices for spring buyers.
While a resilient economy is good news for most Americans, it continues to wear on potential homebuyers as mortgage interest rates once again approach the 7% range.
The 30-year fixed-rate mortgage averaged 6.9% this week, according to the latest Freddie Mac survey. That's up from 6.77% from a week ago and is the highest level since mid-December.
The 15-year fixed-rate also jumped this week, rising from 6.12% to 6.29%.
Strong economic data and an inflation rate that remains in the 3% range are key factors behind the rise in mortgage rates, said Sam Khater, Freddie Mac's chief economist.
"Historically, the combination of a vibrant economy and modestly higher rates did not meaningfully impact the housing market," Khater said. "The current cycle is different than historical norms, as housing affordability is so low that good economic news equates to bad news for homebuyers, who are sensitive to even minor shifts in affordability."
As for when rate cuts might arrive, the next Fed meeting in March should offer some clues, said Jiayi Xu, Realtor.com economist.
"In essence, Federal Reserve officials are seeking more concrete evidence of sustained improvement in inflation before making any changes," Xu said.
Inventory is ticking up, but will buyers come out?
The jump in mortgage rates comes just as the spring homebuying season is about to kick off. While higher rates could keep more buyers on the sidelines, how sellers respond to rate conditions could impact the direction of the market. If sellers still decide to list their homes this spring, but fewer buyers are in the market, inventory could build.
There are signs that inventory is already on the rise. Altos Research reports that inventory of single-family homes is up 13% compared to last year, although it is still well below pre-pandemic levels for this time of year. New listings are also up around 10% compared to last year, which in turn is slowing price gains.
And some economists still expect buyers will emerge in time for prime home-shopping season. "At the beginning of the year, all signs were for a strong first quarter housing market. The turnaround in rates suggest that market activity will shift to the spring, which is the typical busy time of the market," said Lisa Sturtevent, chief economist at Bright MLS.
Mortgage applications down
With mortgage rates rising in recent weeks, mortgage application activity continues to slow, particularly for refinancing loans, according to the Mortgage Bankers Association. Overall applications dropped 10.6% compared to the previous week, with the refinance index falling 11%.
"Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market," said Mike Fratantoni, MBA's chief economist.