After a relatively stable start to the year, mortgage rates have surged to the highest level in two months. This sudden gain could have a chilling effect on the typically busy home buying season.
According to data from Freddie Mac, the average 30-year mortgage rate has jumped 0.13 percentage points to 6.77% this week. This marks the highest rate since mid-December and represents the largest week-over-week increase since late October. Last week, the average rate was at 6.64%.
The recent increase in rates can be attributed to hotter-than-expected economic data released on Tuesday. “On the heels of consumer prices rising more than expected, mortgage rates increased this week,” stated Sam Khater, chief economist at Freddie Mac.
As mortgage rates are one of the main factors influencing housing costs, their movement is closely watched as the spring home buying season approaches. Khater expressed concerns about the potential impact on the market: “The economy has been performing well so far this year and rates may stay higher for longer, potentially slowing the spring homebuying season.”
Early indications suggest a mixed market sentiment. While applications for home purchase loans have seen a slight increase compared to last year’s lows, home prices have risen from the previous year.
In January, consumer sentiment regarding the housing market, as measured by Fannie Mae, showed an upswing. Consumers expressed a greater sense of job security and expected mortgage rates to decline in the next 12 months.
Sentiment improves among home builders in February
According to the National Association of Home Builders, sentiment among home builders improved in February. The anticipation of a surge in buyers entering the marketplace is attributed to pent-up demand and the possibility of declining mortgage rates.
Slow start for home purchases
However, data from Redfin suggests that these positive indicators have not yet translated into increased home purchases. Pending sales for the four weeks leading up to February 11th were 7.3% lower compared to the same period last year.
Sluggish home buying activity
Redfin’s lead economist, Chen Zhao, attributes the sluggish home buying activity to persistently high mortgage rates. In a statement, he mentioned that rates near 7% are expected to persist in the near-term due to the Federal Reserve’s unlikely decision to cut interest rates at its upcoming March meeting. Additionally, home prices have risen by approximately 6% compared to last year, marking the largest four-week increase since October 2022.
Hope for the spring market
Despite the slow start, Zhao believes that activity is likely to pick up in the spring season. He attributes this anticipation to both the selling season and buyers becoming more accustomed to elevated rates. Furthermore, Zhao expects mortgage rates to begin declining later in the spring as inflation eases and the Federal Reserve finally starts cutting interest rates.