The average rate for a 30-year fixed mortgage has crossed the 7% threshold on Monday, marking the first time since December, according to Mortgage News Daily. This surge comes in the wake of the January employment report, which revealed stronger-than-expected job growth. As if that wasn’t enough, the rates climbed even higher after a monthly manufacturing report indicated robust economic performance.
Mortgage rates have been on a roller coaster ride since the summer, briefly hitting a 20-year high of 8% in October. However, rates plummeted soon after as investors gained confidence in the Federal Reserve’s plans to halt interest rate hikes. Although mortgage rates do not directly follow the Fed’s movements, they loosely track the yield on the 10-year Treasury, which is heavily influenced by the central bank’s assessment of the economy at any given time.
“The rapid increase in rates over the past two days is actually not too surprising given the fact 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,” explained Matthew Graham, the Chief Operating Officer at Mortgage News Daily.
As mortgage rates declined over the past couple of months, homebuyers started to return to the market. This coincided with a slight increase in the number of homes available for sale. However, total inventory remains historically low, contributing to intense competition and stubbornly high home prices.
The year 2023 marked the worst for home sales since 1995, owing to soaring prices and limited supply. Experts predict that 2024 will bring improvements, though. Michael Fratantoni, the Chief Economist at the Mortgage Bankers Association, noted, “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.”
Mortgage applications for home purchases had steadily increased but declined in recent weeks as mortgage rates inched higher. With the approaching spring housing market, rates hold even greater significance, given the persistently rising home prices.
In December, the median price of an existing home sold reached a record high of $382,600, according to the National Association of Realtors. This represented a 4.4% increase compared to December 2022, making it the sixth consecutive month of year-over-year price gains. Even slight shifts in rates can have a significant impact on monthly payments, which ultimately determine affordability. In fact, a half percentage point swing can cost or save buyers more than $200 per month for a median-priced home.
Looking ahead, Matthew Graham emphasizes the importance of inflation and its potential impact on rates in 2024. He states, “The future of rates in 2024 is all about ifs and thens. 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 labor market. If inflation comes in cooler than expected, it could balance the outlook.”
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