This week, mortgage rates in the United States breached the key 7% threshold, reaching 7.10% for a 30-year fixed-rate mortgage. This represents a significant increase from the previous week’s rate of 6.88% and a year ago rate of 6.39%. Breaching this 7% threshold is a psychological barrier that had not been crossed earlier this year, signaling a worsening home affordability crisis in the country.
The increase in mortgage rates is based on expectations that the Federal Reserve will not be cutting interest rates anytime soon. While the Fed does not directly control mortgage rates, its actions do influence them, and the current hot inflation readings are keeping the Fed from making any rate cuts. Potential homebuyers are now faced with the decision of buying before rates rise even further or waiting in hopes of a decrease later in the year.
US home sales declined sharply in March, according to a report from the National Association of Realtors, reflecting a tough housing market where buyers are holding off on making purchases. Fed officials have indicated that they expect fewer rate cuts this year due to sluggish progress on inflation. Some economists believe the Fed may not cut rates at all this year, and there is even talk of a potential rate hike.
Bond yields have been soaring due to the Fed’s actions, influencing mortgage rates which track the benchmark 10-year Treasury yield. As the Treasury yield rises, so do mortgage rates, reaching the highest level since November. If inflation does not improve or gets worse, mortgage rates could continue to climb higher throughout the year, presenting challenges for potential homebuyers.
The National Association of Realtors’ chief economist, Lawrence Yun, emphasized that the decision to purchase a home at these elevated rates is a major one for buyers. Housing affordability is being hindered not only by high mortgage rates but also by soaring home prices nationwide. The median price of an existing home in March was $393,500, marking a 4.8% increase from the previous year. Despite the challenges in the housing market, Americans are experiencing one of the strongest job markets in history.
Overall, the increase in mortgage rates above 7% is indicative of the worsening home affordability crisis in the United States. With the Federal Reserve unlikely to cut interest rates in the near future, potential homebuyers are faced with tough decisions on when to purchase a home. Rising bond yields are pushing mortgage rates higher, and if inflation does not improve, rates could climb even further. Despite the challenges, Americans are enjoying a strong job market, adding some positivity to the housing market situation.
