Mortgage rates surged past 7%, hitting their highest level since November

Mortgage rates surged past 7%, hitting their highest level since November

Mortgage rates soared this week, breaching the key 7% threshold and extending America’s housing affordability crisis.

30-year fixed-rate mortgages averaged 7.10% in the week ended 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% breach represents a psychological threshold that has yet to be crossed this year and adds to the pressure on the US housing market during the key spring home buying season. Mortgage rates rose on expectations that the Federal Reserve will not cut interest rates anytime soon. The Fed doesn’t directly set mortgage rates, but its actions affect them, and consistently hot inflation readings keep the Fed on hold.

“As rates trend higher, prospective homebuyers are deciding whether to buy before rates go higher or hold off in hopes of a decline later this year,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

In a separate report, the National Association of Realtors reported that US home sales fell sharply in March in a sign that homebuyers are waiting on the sidelines as they face a tough housing market.

Americans may not get much of a break this year
Fed officials have already signaled that they expect fewer rate cuts this year than they previously thought, based on the latest economic data showing that inflationary progress has stalled. Some economists have floated the possibility that the Fed might not cut rates at all this year — and some central bank officials have mentioned the possibility of another rate hike.

That has caused bond yields to soar. Mortgage rates are tracking the benchmark 10-year US Treasury yield, which has risen to its highest level since November at 4.637%. The Consumer Price Index for March came in hotter than expected, weighing on stock markets and also prompting forecasters to push back their estimates for the first rate cut.

If inflation continues to decline, or worse, mortgage rates could rise even higher. So if it’s 7.01% then it’s going to be an emotional shock, but I think they’re going to put the numbers into a calculator and see if their monthly payments are manageable or not,” NAR chief economist Lawrence Yun said during a call with reporters Thursday.

Homebuyers are deterred not only by high mortgage rates, but also by rising home prices across the country.

The median price of an existing home was $393,500 last month, the NAR reported Thursday, an increase of 4.8% from a year earlier. That was the highest March price on record. February prices also hit record highs. Today’s housing market is tough by many measures, but Americans are also enjoying one of the strongest job markets in history.

The ongoing shortage of housing supply
Lack of inventory has been a long-standing issue for the American housing market.

That has slowly improved in recent months, rising 4.7% in March from the previous month and up 14.4% last month year over year, according to NAR data. But overall housing supply still does not meet demand, which weighs on affordability.

“We need more inventory, for sure, for the health of the market,” Yun said Homeowners who locked in low mortgage rates before the Fed began raising rates in 2022 largely chose not to sell their homes. Yun has said before that life changes such as marriage, divorce and new children can eventually force such homeowners to give up waiting for mortgage rates to drop and sell their homes.

At current sales rates, it will take 3.2 months to finish the current level of homes on the market, up from 2.9 months in February and 2.7 months in March 2023.

Uncertainty about NAR settlement
There is also lingering uncertainty over NAR’s historic settlement announced in March and expected to change the way home buyers and sellers pay their real estate agents. It hasn’t been approved by the courts yet, but it’s already changing the behavior of home buyers and sellers — even before the new rules take effect in July. Yun said first-time buyers reentered the market last month “because people heard about the lawsuit settlement where buyers may have to raise additional funds to pay for professional representation, but they want to do it before the new rules take effect.”

Prospective homebuyers have told CNN they hope the settlement will mean lower home prices, offsetting the pain of high mortgage rates, but many Realtors say there are many unknowns.

“This is uncharted territory,” Debra Dobbs, a Realtor in Chicago, told CNN earlier about the potential new regulations.