A house with a zig-zagging arrow above it
Illustration by Lanette Behiry/Real Estate News; Shutterstock

With no rate cuts expected soon, financing a home remains tough 

As the U.S. economy continues to show strength, mortgage rates could stay in the 7% range this homebuying season.

April 11, 2024
3 minutes

Key points:

  • The 30-year fixed-rate mortgage averaged 6.88% this week, while the daily average rate jumped to 7.34% following a hotter-than-expected inflation report.
  • The latest economic data will make the Federal Reserve reluctant to cut interest rates in the coming months.
  • Meanwhile, inventory continues to build, fueled by homeowners who are making life changes.

The conversation about mortgages has shifted from when the Federal Reserve might cut interest rates to just how high rates might go this spring and summer.

The 30-year fixed-rate mortgage averaged 6.88% this week, according to the latest Freddie Mac survey. That's up from 6.82% a week ago. The 15-year fixed rate also continued to climb this week, to 6.16%.

Following Wednesday's consumer price index (CPI) report showing hotter-than-expected inflation — combined with a strong jobs report the week before — 7% mortgage rates could be the norm for the coming weeks, said Lisa Sturtevant, chief economist at Bright MLS. 

The inflation report sent the daily mortgage rate average much higher, according to Mortgage News Daily. The 30-year fixed-rate jumped more than a quarter of a point to 7.37% on April 11, a pace last seen in October 2022.

Inflation has proven to be difficult to control, hitting 3.5% in March, compared to 3.2% in February. For the Fed, that's likely a clear signal that this is not the time to begin cutting interest rates.

The CPI report "ended up exceeding the hype by showing that inflation refuses to head to the lower levels required for a lower interest rate environment," said Matthew Graham of Mortgage New Daily about the sizable one-day rate jump.

A tricky situation for the Fed

The Federal Reserve remains in a tough spot as it continues to try and steer the economy toward a soft landing. If it waits for core inflation to get to 2%, elevated interest rates will stick around for a while, said Sturtevant. But higher interest rates also suppress housing supply, and more supply is what's needed to bring housing costs down.

"By sticking hard-and-fast to its inflation target, the Fed risks waiting too long to lower interest rates and is not taking into account the particular way in which the housing market is driving inflation," Sturtevant said.

The lock-in effect is real, but inventory is improving

The combination of elevated rates, which are deterring some buyers, and the locked-in ultra-low rates enjoyed by many existing homeowners, means home inventory will continue to be dictated by the "five D's" — death, divorce, diplomas, downsizing and diapers — said Odeta Kushi, chief economist at First American.

"While 'life happens' events may spur some buyers and sellers, it's not enough to fuel the housing market to more normal sales levels," Kushi said.

Still, inventory continues to build this spring, according to the latest Redfin market report. New listings are up 14.1% for the four weeks ending April 7, the biggest increase in nearly three years. Active listings are up 8.2% year-over-year but remain below pre-pandemic levels. Available supply is averaging 3.2 months, moving closer to what's considered a more balanced market of 4-5 months.

"Housing costs are likely to continue going up for the near future, but persistently high mortgage rates and rising supply could cool home-price growth by the end of the year, taking some pressure off costs," said Redfin Economic Research Lead Chen Zhao.

Mortgage applications remain flat

Meanwhile, overall loan application volume remained flat this week, according to the Mortgage Bankers Association, with most activity driven by refinance VA applications. 

The unadjusted purchase index was down 4% compared to a week ago and is 23% lower than a year ago.

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