This photo taken on August 22, 2023 shows an advertisement in front of a property for sale in Millbrae, California, USA. The National Association of Realtors reported Tuesday that condo sales in the United States fell 2.2 percent in July from June to a seasonally adjusted annual rate of 4.07 million units. Sales fell 16.6 percent compared to July last year, while homes sold in July at the slowest pace since 2010. (Photo by Li Jianguo/Xinhua via Getty Images)
Xinhua News Agency | Xinhua News Agency | Getty Images
According to Mortgage News Daily, the average interest rate on the popular 30-year fixed-rate mortgage topped 7 percent on Monday for the first time since December, reaching 7.04 percent.
This came after the rate posted its biggest increase in more than a year on Friday, following a much higher-than-expected January jobs report. Interest rates rose even further on Monday after a monthly production report also delivered high numbers.
Mortgage rates have been on a wild run since the summer, briefly hitting a 20-year high of 8% in October. Interest rates then fell sharply as investors saw increasing signs that the Federal Reserve would end its recent period of rate hikes.
Mortgage rates are not directly tied to the Fed yield, but rather to the yield on the 10-year Treasury note, which depends heavily on the central bank’s impression of the economy at any given time.
“The rapid rise in interest rates over the last two days isn’t actually all that surprising, given that the market was widely viewed as overly optimistic about the Fed’s rate-cutting prospects. The Fed has repeatedly indicated that economic data has the final say on this forecast, and the data was shockingly unfavorable for rates at the time of Friday morning’s jobs report, said Matthew Graham, chief operating officer at Mortgage News Daily.
As mortgage rates fell over the past two months, buyers appeared to be returning to the market. This coincided with a slight increase in the number of homes for sale. However, the total inventory is still historically low and creates high competitive pressure. It also keeps property prices stubbornly high.
High prices and low supply combine to make 2023 the worst year for home sales since 1995. Most expect 2024 to be better.
“The strong labor market is good news for the spring buying season, as higher household incomes are a necessary prerequisite, but it also means mortgage rates are unlikely to fall much further at this point,” said Michael Fratantoni, chief economist at Mortgage Banks Association.
The number of mortgage applications to purchase a home has been steadily increasing, but has declined in recent weeks as mortgage rates rose slightly. With real estate prices high and still rising, interest rates are more important than ever as the all-important spring housing market approaches.
According to the National Association of Realtors, the median price of an existing home sold in December (most recent data) was $382,600, a 4.4% increase from December 2022. This was the sixth consecutive month of year-over-year price increases. The average price for the full year was $389,800, a record high.
Given the high prices, even small fluctuations in interest rates have an outsized impact on monthly payments, which are the key influence on affordability. Just a half-percentage point change can cost or save a buyer more than $200 per month on the median-priced home. So what’s next?
“The future of interest rates in 2024 is all about ifs and thens,” Graham said. “If we see more data like last Friday’s jobs report, it will be difficult to get rates back below 7%. But inflation is even more important than the labor market. If inflation turns out to be weaker than expected, this could balance the outlook.”
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2024-02-05 18:05:34
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