The average long-term U.S. mortgage rate has surged to its highest point in nearly nine months this week, significantly increasing borrowing costs for prospective homebuyers during what is traditionally the busiest period for the housing market.
Freddie Mac, a major mortgage buyer, reported Thursday that the benchmark 30-year fixed rate mortgage climbed to 6.51%, up from 6.36% last week. Despite this sharp increase, the current average rate remains below the 6.86% recorded a year ago.
Mortgage rates have been on an upward trend since the onset of the war with Iran. The resulting closure of the Strait of Hormuz has disrupted energy markets, leading to a sharp rise in crude oil prices, which is a key contributor to inflation.
Several factors influence mortgage rates, including the Federal Reserve’s interest rate policy decisions and bond market investors’ economic and inflation expectations.
These rates generally mirror the trajectory of the 10-year Treasury yield, which lenders use as a benchmark for pricing home loans.
Expectations of higher oil prices, coupled with concerns over the substantial and growing debts of the U.S. government and other entities, have pushed up long-term bond yields, consequently driving mortgage rates higher.
The yield on the U.S. 10-year Treasury note stood at 4.6% in midday trading Thursday, up from 4.47% a week prior and 3.97% in late February before the conflict began.
(Reuters)
Meanwhile, borrowing costs for 15-year fixed-rate mortgages, a popular choice for homeowners refinancing their loans, also rose this week.
That average rate increased to 5.85% from 5.71% last week, though it was 6.01% a year ago, according to Freddie Mac.
When mortgage rates climb, they can add hundreds of dollars to borrowers’ monthly payments, thereby diminishing their purchasing power.
As recently as late February, the average rate on a 30-year mortgage briefly dipped just under 6% for the first time since late 2022, a threshold it has not fallen below since. It is now at its highest level since August 28, when it reached 6.56%.
While average long-term mortgage rates are still lower than they were at this time last year, their recent ascent has contributed to dampened sales during the current spring homebuying season.
Sales of previously owned U.S. homes were largely flat last month, following declines earlier in the year, extending a nationwide housing slump that began in 2022 as mortgage rates started to rise from pandemic-era lows.
Mortgage applications, encompassing both home purchases and refinances, fell by 2.3% last week from the previous week, reaching their lowest level in five weeks, according to the Mortgage Bankers Association (MBA). A significant portion of this decline was attributed to a sharp drop in home purchase applications.
The elevated mortgage rates are prompting more prospective homebuyers to consider adjustable-rate mortgages (ARMs). These loans, which typically offer lower initial interest rates compared to traditional 30-year fixed-rate mortgages, accounted for nearly 10% of all mortgage applications last week, marking the highest share since October, the MBA reported.
However, home shoppers undeterred by rising rates are finding some advantages in various markets, including an increase in available properties compared to a year ago and data indicating that home listing prices have begun to fall in many metropolitan areas, particularly across the South and Midwest. Anthony Smith, senior economist at Realtor.com, noted, “The spring season still offers real opportunity, though each uptick in rates narrows the pool of buyers who can make the numbers work.”