Mortgage rates move in the wrong direction for would-be buyers
Interest rates are up for the second week in a row, and signs point to further bumps. This could put a damper on the spring selling season.
Key points:
- Freddie Mac’s weekly survey shows 30-year-fixed-rate mortgages averaged 6.32%, up from 6.12% a week earlier.
- The rise in rates could put buyers back on the sidelines; mortgage applications are already trending downward.
- Home prices could remain stable in some markets as pent-up demand leads to competition for relatively few homes.
Stronger than expected economic data has caused mortgage rates to climb again, a trend that may continue heading into spring.
The 30-year-fixed-rate mortgage averaged 6.32% this week, according to the Freddie Mac survey, up from 6.12% a week earlier. It's the second consecutive week that rates have risen after a steady decline to start the year.
The strong employment report, a surprisingly large Consumer Price Index increase and robust retail sales data are influencing mortgage rates, said Orphe Divounguy, senior macroeconomist at Zillow Home Loans.
As one sign that mortgage rates in the Freddie Mac survey will continue heading upward, Mortgage News Daily is reporting the daily movement in rates is in the 6.78% range as of Feb. 16.
Rates are now at a level last seen in December, when demand was stalled, said Lisa Sturtevant, chief economist for Bright MLS. While this level will cause many, particularly first-time homebuyers, to wait, previously delayed demand and competition for relatively few homes could lead to stable or even rising prices in some local markets.
"Due to this pent-up demand, a lot of people will accept that rates above 6% constitute the 'new normal' in the housing market," Sturtevant said, adding it may also mean the return of more all-cash offers by those who can do it. "Prospective homebuyers might be surprised by the level of competition in the market, where they are competing with cash buyers as well as other traditional buyers for very low inventory."
So far the rise in interest rates the past couple of weeks has led to a decline in the number of people applying for mortgages. Mortgage applications decreased 7.7% for the week ending Feb. 10 compared to the week before, according to the Mortgage Bankers Association's weekly survey.
Joel Kan, MBA's vice president and deputy chief economist, said the number of applications is directly tied to what's happening with the mortgage interest rate, adding that refinance borrowers also remain on the sidelines because they have little financial incentive to act.
In the coming weeks, rates could be back in the 7% range, said George Ratiu, manager of economic research at Realtor.com.
"For housing markets, the rebound in rates translates into higher mortgage payments from a year ago, but lower than the summer 2022 peak of the market, because prices have dropped 11% over the past 7 months," Ratiu said.
The 15-year fixed-rate mortgage also had a hefty increase this week, averaging 5.51% in the Freddie Mac survey, up from last week's 5.25%.