Housing MarketMortgage Rates

As inflation heats up, mortgage rates also rise

Even with more available homes for sale, higher borrowing costs are likely to limit sales growth

Mortgage rates posted a big jump last week after Wednesday’s release of a higher-than-expected inflation report.

As a result, HousingWire’s Mortgage Rates Center showed the average 30-year fixed rate for conventional loans at 7.24% on Tuesday, up from 7.16% one week earlier. That’s roughly 40 basis points above the rate at the start of the year. At the same time one year ago, the 30-year fixed rate averaged 6.42%. Meanwhile, the 15-year fixed rate averaged 6.64% on Tuesday, up from 6.41% one week earlier.

As the market enters the peak homebuying season, last week’s above-consensus inflation figures brought the mortgage market back to a sour reality: The average 30-year fixed mortgage rate may be close to or above the 7% level for longer than previously expected.

“As mortgage rates increase, it’s never good news for the housing market, especially when more sellers are in the mix,” HousingWire lead analyst Logan Mohtashami said. “We saw a bounce in demand early in the year as rates fell. However, just like last year, when mortgage rates headed higher, it limits sales growth.”

As of April 12, there were 526,000 active single-family listings on the market, up 2.6% from the previous week, according to Altos Research. This uptick in inventory is a function of high and rising mortgage rates, according to Mike Simonsen, founder and president of Altos Research

Additionally, there were 66,000 new listings unsold last week plus another 20,000 immediate sales for 86,000 total new listings, up 32% from the same week a year ago.

Last week, the U.S. Bureau of Labor Statistics reported that consumer prices were up 3.5% in March compared to a year earlier. Investors reacted by adjusting their expectations for the number of rate cuts from the Federal Reserve this year. 

At the end of 2023, many investors anticipated six rate cuts for the year. A few weeks ago, three cuts became the expected norm. Now it’s two or fewer cuts, and some experts — like former Treasury Secretary Lawrence Summers — have included a rate hike in their scenarios, although the likelihood of that remains low.

In remarks made Tuesday in Washington, D.C., Federal Reserve Chair Jerome Powell said that multiple measures of inflation will need to move “sustainably toward 2% before it would be appropriate to ease policy.“

“That said, we think policy is well positioned to handle the risks that we face,“ Powell said. “If higher inflation does persist, we can maintain the current level of restriction for as long as needed. At the same time, we have significant space to ease should the labor market unexpectedly weaken.”

This report was updated to include comments from Federal Reserve Chair Jerome Powell.

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