According to data released Thursday by Freddie Mac, the average rate for a 30-year fixed-rate mortgage rose to 6.88% in the week ending April 11, up from 6.82% the previous week. Comparatively, a year ago, the average rate stood at 6.27%.
Despite largely holding steady in recent weeks, there’s a looming possibility of further increases, potentially surpassing the psychologically significant threshold of 7%, particularly if inflation remains stubbornly high. While the Federal Reserve doesn’t directly control mortgage rates, its monetary policy decisions exert considerable influence, and if inflation continues to outpace expectations, the Fed may refrain from cutting interest rates.
Persistent Pressure: Mortgage Rates Inch Higher Amidst Affordability Concerns
Freddie Mac’s chief economist, Sam Khater, highlighted the ongoing uptrend in mortgage rates, attributing it to sustained inflationary pressures and the recalibration of the Fed’s policy trajectory. Although recent inflation data showed minimal movement, financial market reactions suggest a more nuanced economic outlook.
Mortgage rates closely mirror the yield on the 10-year US Treasury note, which adjusts in anticipation of the Fed’s actions. The yield surpassed 4.5% on Wednesday, reaching its highest level since November, following the release of the latest Consumer Price Index, which indicated persistent inflation in March. This upward trajectory in yields doesn’t bode well for mortgage rates, and economists foresee rates remaining above 6% throughout the year, particularly if the Fed refrains from rate cuts.
While officials currently anticipate rate cuts later this year, the timing may be delayed compared to previous expectations. However, such cuts could provide some relief to the challenging housing market conditions prevalent across the country.
Amidst these rate concerns, improvements in housing inventory offer a glimmer of hope for enhanced affordability. The National Association of Realtors reported a rise in home listings in February, leading to increased sales activity for the month.
Glimmer of Hope: Improving Housing Inventory Offers Relief in Challenging Market
The shortage of available homes, a longstanding issue exacerbating housing affordability woes, has seen some alleviation with total housing inventory increasing by 5.9% in February compared to January, and by 10.3% from the previous year. This uptick in inventory provides buyers with more options and helps alleviate upward pressure on prices.
President Joe Biden has proposed measures to address housing market challenges, including tax credits and initiatives to boost homebuilding. However, the efficacy of these proposals remains uncertain, particularly in light of ongoing supply-demand imbalances. Despite recent improvements and potential Fed rate cuts, the primary hurdle remains the mismatch between supply and demand, which continues to impede home affordability for many Americans.
