Money Research Collective’s editorial team solely created this content. Opinions are their own, but compensation and in-depth research determine where and how companies may appear. Many featured companies advertise with us. How we make money.
Mortgage Rates Jumped Higher This Week: Freddie Mac
By Leslie Cook MONEY RESEARCH COLLECTIVE
Is this the start of an upward trend? It’s not yet clear, experts say. But mortgage rates jumped up this week, increasing for the second week in a row. And this week’s increase is larger than the one last week. The average rate on a 30-year fixed-rate mortgage increased by 0.20 percentage points over the…
Is this the start of an upward trend? It’s not yet clear, experts say. But mortgage rates jumped up this week, increasing for the second week in a row. And this week’s increase is larger than the one last week.
The average rate on a 30-year fixed-rate mortgage increased by 0.20 percentage points over the past week to settle in at 6.32%, according to Freddie Mac’s benchmark rate analysis. The rate for a 15-year fixed-rate loan is also quite a bit higher, moving up by more than a quarter of a percentage point to 5.51%.
Blame the healthy economy, says a Freddie Mac spokesperson. “The economy is showing signs of resilience, mainly due to consumer spending,” said Sam Khater, Freddie Mac’s chief economist, in a press release. As a consequence, Khater explains, interest rates are ticking up in order to apply brakes to the economy, and especially “to inflation, which continues to persist.”
Although most analysts deem it unlikely that mortgage rates will climb past 7% in the near future, rates may continue to rise and get close to that level over the next few weeks. Such a trend is especially likely, the experts warn, if inflation stubbornly persists — it slowed less than expected last month, for instance. Regardless, potential homebuyers should anticipate a certain volatility in rates, within a range of between 6% and 7%.
Rates are still below the peak of 7.08% seen last November and provide some opportunities for well-qualified buyers to jump back into the market. Still, every rise in mortgage rates, whether large or small, can have a big impact on affordability. The monthly mortgage payment on a $400,000 house, about the median list price for a single-family home, is now about $800 higher than it was this same time last year, according to data from Realtor.com. And payments have nearly doubled compared with what they were in January 2020, before the pandemic began.
Inflation stays hot, mortgage rates go up
Consumer prices increased more than expected in January, bringing home the reality that the battle against inflation is far from won.
On Tuesday, the Bureau of Labor Statistics reported that prices for goods and services increased by 0.5% in January, representing a 6.4% year-over-year gain. This was lower than the 6.5% yearly increase logged in December but higher than what the market expected, which was a 6.2% hike.
The unexpected increase in the consumer price index was largely a result of rising homeownership and rental costs, which make up 40% of the CPI.
Combined with other recent news, this week’s figure points to an economy that remains resilient, despite efforts by the Federal Reserve to slow down demand and reduce inflation to a target figure of 2%.
“The stronger-than-expected employment report, a surprisingly large Consumer Price Index increase and robust retail sales data are putting upward pressure on bond yields and the mortgage rates they tend to influence,” said Orphe Divoungay, senior macroeconomist at Zillow Home Loans, in a statement.
As a result, there’s now the growing possibility that the Federal Reserve may have to increase the federal funds rate even more than it originally planned, and do so for a longer period of time than was expected.
Analysts had been anticipating that the Federal Reserve was nearing the end of its monetary tightening policy. The Fed has implemented a total of eight increases in the federal funds rate in an effort to cool down the economy. The expectation was that the Fed would implement another rate hike in March, and then pause and hold steady on rates.
However, with inflation still running higher than the central bank tends to like, now there’s uncertainty as to how many more increases the central bank will make.
Markets are now turning to next week’s preferred inflation measure, the personal consumption expenditures index, which excludes highly volatile food and energy price sectors. Analysts hope the index announcement will provide greater clarity on how effectively the Fed policy is working.
More from Money:
Leslie Cook is the Lead Mortgage Reporter covering real estate and mortgages for Money. She started out over 30 years ago as a business reporter with Caribbean Business newspaper in San Juan, Puerto Rico, covering computers, and human resources. Her work has also appeared in Reuters and she graduated Cum Laude from Bryn Mawr College in Pennsylvania with a bacheloru2019s degree in history.