A “For Sale” sign outside a home in Albany, California, on May 31, 2022.
David Paul Morris | Bloomberg | fake images
Mortgage rates soared on Friday after a monthly government report on wholesale prices showed inflation is still persistent and higher than most analysts expected.
The average 30-year fixed mortgage rate jumped to 7.14%, according to Mortgage News Daily. This is the highest level in two months.
Mortgage rates last peaked in October, but then fell sharply over the next two months, stabilizing at around 6.6% in December. They rose again more than 7% last Friday after another government report on consumer prices came in higher than expected.
“There are two ways to look at recent rate trends in light of the data-driven spikes of the past two weeks,” said Matthew Graham, chief operating officer of Mortgage News Daily. “On the one hand, we can take solace in the fact that rates remain almost a percentage point lower than in October. On the other, optimism for lower rates in 2024 has abruptly given way to skepticism.”
The drop in rates late last year had sparked optimism in the housing market, as higher interest rates, coupled with high home prices, sidelined buyers in the fall. Sales of new construction homes soared 8% in December, according to the U.S. Census Bureau, with lower rates being the main driver.
Homebuilder sentiment, based on an index from the National Association of Home Builders, has been rising over the past three months as builders reported that lower interest rates were driving buyer traffic to their model houses. In the February report, builders said they expected mortgage rates to continue to moderate in the coming months.
“Buyer traffic is improving, as even small drops in interest rates will produce a disproportionately positive response among prospective homebuyers,” said NAHB President Alicia Huey, a home builder and developer in Birmingham, Alabama. . “And while mortgage rates remain too high for many potential buyers, we anticipate that due to pent-up demand, many more buyers will enter the market if mortgage rates continue to decline this year.”
Demand has been strong, despite high home prices and the very low supply of homes for sale. On top of that, President's Day weekend is considered the unofficial start of the all-important spring real estate market.
But this new rise in rates could drive away buyers. In January, as rates stabilized after their declines, both signed contracts on existing homes and new listings weakened, according to Redfin, a national real estate brokerage.
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