graph showing percentage rate going up, up, up

Last week, the U.S. average interest rate on a fixed-rate, 30-year mortgage climbed to 7.1 percent, Mortgage News Daily reported.

Mortgage rates tend to follow bond yields, which have been rising lately as the bond market has weakened in the face of stubborn inflation and a growing consensus that the U.S. Federal Reserve will continue its campaign of rate increases.

Bond yields rise as bond prices fall.

“Rates continue to move at the suggestion of economic data, and the data hasn’t been friendly,” Matthew Graham, COO at Mortgage News Daily, told CNBC. “This is scary, considering this week’s data is insignificant compared to several upcoming reports.”  

Mortgage rates pushed up past 7 percent in October to their highest in more than two decades. They then descended as inflation eased and the number of prospective home buyers dwindled. Rates fell below 6.15 percent in January.

That sparked an 8-percent upturn in home sales compared to December, data compiled by the National Association of Realtors (NAR) showed. 

However, since 1 February, the average rate is up a full point. That has jacked the monthly payment by $230 in the last four weeks for someone buying a $400,000 home and putting 20 percent down on a 30-year, fixed-rate loan, according to the NAR.

Compared to a year ago, when mortgage rates averaged around 4 percent, the monthly payment on that house is 50 percent higher now, CNBC reported.

As a result, the number of applications for new mortgage loans slid week during February, cratering in the final week to a 28-year low, sitting 44 percent below the same week a year earlier, the Mortgage Bankers Association (MBA) said.

Applications to refinance a home were down 6 percent during February’s final week and dove 74 percent, year on year. 

“After solid gains in purchase activity to begin 2023, higher rates, ongoing inflationary pressures, and economic volatility are giving some prospective homebuyers pause about entering the housing market,” MBA president Robert  Broeksmit said to CNBC.

“Consumers have taken on a record amount of debt, including mortgage, personal, auto, and student loans,” George Ratiu, senior economist at Realtor.com, said in a CNBC interview. 

“With rising interest rates, financial burdens are expected to increase, making consumer choices more difficult in the months ahead,” he added.

TREND FORECAST: The U.S. housing market is in a bind. Again, while we forecast a decline in home prices, we do not, minus a wildcard event such as nuclear war etc., forecast a housing crash. 

Builders are having trouble finding land on which to build new houses. Higher interest rates are shutting more and more buyers out of home ownership. The number of houses for sale is increasing but still low, keeping home prices high. Homeowners are reluctant to sell, knowing their home values have fallen in recent months—and knowing that they will pay a premium price to buy or rent a new home.

The housing market will not free up until mortgage rates sharply fall; homeowners acknowledge reality and agree to sell their homes at market prices; and home prices descend from 2022’s unrealistic heights to permit more buyers to realize their dream of home ownership.

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