Mortgage Rate Bounce
Over the past year, the Fed’s rate-raising campaign has introduced volatility and uncertainty to the housing market. Both would-be homebuyers and homeowners alike have been buffeted by tenuous valuations and the fluctuating cost of carrying a mortgage.
After hitting a 20-year high of over 7% last October, mortgage rates had trended downward since mid-November, going hand-in-hand with data indicating inflation was moderating.
This prompted buyers to take action. Pending home sales jumped 8% in December. A housing recovery appeared possible, with important implications for the spring selling season. By mid-January, 30-year fixed mortgages near 6% could be secured.
Rates Back to 7%
Unfortunately, disappointing data on inflation has prompted a trend reversal.
Since February, mortgage rates have soared by 100-basis-points, bringing them back over 7%. Market observers fear that inflation is proving harder to tame than hoped for, in large part due to the strong labor market. Bond yields have been pushed higher and mortgage rates have followed suit.
Predictably, amid the unfriendly interest rate environment, mortgage applications fizzled in February.
As the cost of financing a home rises, many Americans are being squeezed out of the market. A 7% mortgage rate translates to a payment that is 50% higher than it was a year ago, when rates sat at just 4%.
Inflation’s effect of shrinking buying power, coupled with higher debt-servicing costs, have made owning a home unattainable for many. For such a purchase, patience is key. The right time to buy a home is different for everyone, but mortgage rates are a major factor, and with the Fed’s campaign apparently far from over, prospective buyers may need to be patient for some time.
Even so, history shows that expectations don’t always materialize. Surprising data over the past month drove the rates up – but future economic data could surprise on a positive note, which would naturally have the opposite effect. Should inflation moderate, so too may mortgage rates.
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