Housing Market Dealt Blow

Houses are pictured in a Los Angeles neighborhood on January 17, 2024.

Mortgage rates jumped above the 7 percent mark in the United States for the first time since December 2023, according to data released on Wednesday by the Mortgage Bankers Association.

A weekly survey by MBA for the week ending on February 16 found that the average contract interest rate for the 30-year fixed-rate mortgage—the most popular among American borrowers—with conforming loan balances ($766,550 or less) increased to 7.06 percent last week from 6.87 percent the week before. It was the largest increase since October.

An increase in the cost of mortgages spells bad news for the U.S. housing market, which is still struggling with a huge affordability crisis despite a modest price correction between late summer 2022 and spring 2023, as many first-time homebuyers find themselves unable to purchase a home due to stubbornly high demand and historically low inventory.

In the case of jumbo loan balances (greater than $766,550), the average contract interest rate for 30-year fixed-rate mortgages jumped up to 7.16 percent from 7 percent, while for 30-year fixed-rate mortgages backed by the FHA it went up from 6.68 to 6.91 percent, according to MBA.

“Mortgage rates moved back above 7 percent last week following news that inflation picked up in January, dimming hopes of a near term rate cut,” Mike Fratantoni, MBA’s SVP and chief economist, said in a press release.

“Mortgage applications dropped as a result with a larger decline in refinance applications. Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market.”

Newsweek reached out to MBA for comment by email on Wednesday morning.

Last week, the Federal Home Loan Mortgage Corporation, better known as Freddie Mac, similarly reported that mortgage rates had increased, though their data reflect a smaller growth. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 6.77 percent as of February 15, up from 6.64 percent the week before.

“On the heels of consumer prices rising more than expected, mortgage rates increased this week,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

“The economy has been performing well so far this year and rates may stay higher for longer, potentially slowing the spring homebuying season. According to our data, mortgage applications to buy a home so far in 2024 are down in more than half of all states compared to a year earlier.”

While many had hoped for the Federal Reserve to start cutting interest rates soon after declaring its aggressive hike rate campaign late last year, the central bank appears in no rush to do so.

“The Federal Reserve will not cut interest rates in the first half of this year, in my view,” Lawrence Yun, the National Association of Realtors chief economist, said in a statement shared with Newsweek commenting on the latest Consumer Price Index data, which showed actual inflation to be at 3.1 percent, lower than the month before at 3.4 percent.

“Rate cuts of 3, 4, or even 5 rounds will be possible in the second half of the year as rent measures will be much more well behaved,” Yun said. “Mortgage rates will be bouncy week-to-week but will most likely settle towards 6 percent by the year end.”

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