Federal Reserve’s stance on interest rates adds to the market's volatility
US mortgage rates have reached their highest level since December, presenting new challenges for the recovering housing market.
The average contract rate for a 30-year fixed mortgage rose for the second consecutive week, up 12 basis points to 7.13%, according to the latest data from the Mortgage Bankers Association (MBA). The effective rate, which includes fees and compounding interest, also climbed to 7.32%.
“Rates increased for the second consecutive week, driven by incoming data indicating that the economy remains strong and inflation is proving tougher to bring down. Mortgage rates increased across the board, with the 30-year fixed rate at 7.13% – reaching its highest level since December 2023,” said Joel Kan, vice president and deputy chief economist at MBA.
The increase in mortgage rates is closely tied to shifting market expectations surrounding Federal Reserve policy.
With the 10-year Treasury yield also on the rise, further upward pressure on mortgage rates is possible. Federal Reserve chair Jerome Powell’s recent comments, suggesting a slower timeline for potential cuts in the benchmark interest rate, increase the likelihood of further upward pressure on mortgage rates.
This could further dampen housing demand, which has already been impacted by affordability challenges due to limited inventory and rising home prices.
Read more: How are first-time buyers coping with mortgage market challenges?
“The 30-year mortgage broke decisively above 7% this week as investors came to terms with the persistence of inflation,” said Holden Lewis, home and mortgage expert at NerdWallet. “Now the chairman of the Federal Reserve says it’s possible that the central bank won’t cut short-term interest rates this year. Just a few months ago, investors were expecting three or four rate cuts this year. This change in outlook is forcing mortgage rates higher.”
Despite rising rates, the MBA data showed some positive signs. Purchase applications increased by 5%, representing the first gain in five weeks. However, overall application volume rose only slightly (3.3%), and the refinance index saw a minimal 0.5% increase.
“Despite these higher rates, application activity picked up, possibly as some borrowers decided to act in case rates continue to rise,” Kan said. “Purchase applications drove most of the increase, but remain at low levels of around 10% behind last year’s pace. Refinance applications increased very slightly, driven by a 3% gain in conventional applications.”
The MBA survey, which has been a weekly fixture since 1990, collects data from mortgage bankers, commercial banks, and thrifts, covering over 75% of all retail residential mortgage applications in the US.
Stay updated with the freshest mortgage news. Get exclusive interviews, breaking news, and industry events in your inbox, and always be the first to know by subscribing to our FREE daily newsletter.
