Rosalind Evans
In a surprising turn of events, the average rate on the popular 30-year fixed mortgage has soared past the 7% mark, reaching 7.04% on Monday for the first time since December, as reported by Mortgage News Daily. This significant increase follows a sharp rise last Friday, triggered by an unexpectedly strong January employment report, and continued to climb following a robust monthly manufacturing report on Monday.
Mortgage rates have been anything but stable, experiencing dramatic fluctuations since last summer. They peaked at a 20-year high of 8% in October before witnessing a steep decline, fueled by speculation that the Federal Reserve might halt its latest interest rate hikes. It’s important to note that mortgage rates are not directly tied to the Fed’s decisions but are influenced by the yield on the 10-year Treasury, which is shaped by the central bank’s view of the economic landscape.
Matthew Graham, the Chief Operating Officer at Mortgage News Daily, commented on the recent spike: “The rapid increase in rates over the past two days is not too surprising given that the market was widely seen as overly optimistic on the Fed rate cut outlook. The Fed has repeatedly pointed to economic data having the final say in that outlook, and data has been shockingly unfriendly to rates as of Friday morning’s jobs report.”
Despite the recent rate downturn, there had been signs of recovery in the housing market, with a noticeable uptick in buyer interest and a slight increase in housing inventory. However, the supply remains critically low, maintaining high competition and elevated home prices. This scenario contributed to 2023 becoming the most challenging year for home sales since 1995, with expectations of a recovery in 2024.
Michael Fratantoni, the Chief Economist at the Mortgage Bankers Association, remarked on the current situation, saying, “The strong job market is good news for the spring buying season as higher household incomes are a necessary component, but it also means that mortgage rates are not likely to drop much further at this point.”
The housing market is critical with the spring buying season approaching and mortgage rates playing a pivotal role amidst rising home prices. With the median price of an existing home hitting a record high, even minor fluctuations in mortgage rates can significantly impact affordability.
Looking ahead, Graham suggests that the future trajectory of mortgage rates in 2024 will hinge on economic data and inflation trends, stating, “If we see more data like last Friday’s jobs report, rates will have a hard time getting back below 7%. But inflation is even more important than the labour market. It could balance the outlook if inflation comes in cooler than expected.”
As the market navigates through these uncertain times, prospective homebuyers and industry stakeholders are keenly watching for signs of stabilization in mortgage rates and the broader economy.
