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Mortgage – Despite a new year, the fight against inflation continues as it remains stubbornly unpredictable.

For the fifth consecutive week, mortgage rates inched toward 7%, and the Federal Reserve suggested that rates will continue increasing.

Fixed-rate average

According to Freddie Mac data released on Thursday, the 30-year fixed-rate mortgage hit an average of 6.73% in the week ending March 9.

A week before, the fixed-rate mortgage was lower at 6.65%.

Last year, the 30-year fixed rate was 3.85%.

It peaked at 7.08% in November, but the rates started dropping.

Despite the positive progress, rates started climbing again in February.

In the past month, the fixed-rate mortgage rose half a percentage point.

The robust economic data suggests that the Federal Reserve has more to do in the battle against inflation and will likely continue hiking the benchmark lending rate.

“Mortgage rates continue their upward trajectory as the Federal Reserve signals a more aggressive stance on monetary policy,” noted Sam Khater, a chief economist from Freddie Mac.

“Overall, consumers are spending in sectors that are not interest rate-sensitive, such as travel and dining out.”

“However, rate-sensitive sectors, such as housing, continue to be adversely affected. As a result, would-be homebuyers continue to face the compounding challenges of affordability and low inventory.”

The average mortgage rate is based on the mortgage applications Freddie Mac receives from thousands of lenders across the United States.

It only covers borrowers who give a down payment of 20% with excellent credit scores.

Rate hikes confirmed to continue

At the onset of 2023, inflation showed signs of cooling off.

However, substantial employment numbers and a rising Consumer Price Index showed that inflation was still around and remained stubbornly high.

On Tuesday, Federal Reserve Chairman Jerome Powell spoke to Congress, saying the central bank will likely raise interest rates higher than before.

Economist Jiayi Xu of Realtor.com said:

“While last month Fed officials said that a smaller increase in the federal funds rate would help create a soft landing for the economy, Powell’s testimony on Tuesday made it clear that the central bank is prepared to return to a faster pace of rate increases if the incoming February economic indicators remain strong.”

She said the decision suggests that investors weren’t fully prepared as they are anxious about the Federal Reserve’s next actions.

The Fed has another rate-setting meeting on March 21 – March 22, with the possibility of another half-point rate in the cards.

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“Uncertainty about how high rates will go and how long they will remain elevated makes it challenging for investors to make well-informed decisions,” said Xu.

“Therefore, it’s crucial to keep a close eye on the latest developments from the Federal Reserve.”

Although the Fed doesn’t set the interest rates borrowers pay on mortgages directly, its actions still influence them.

Mortgage rates tend to track the yield on 10-year US Treasury bonds.

It moves based on anticipation of the Fed’s actions, what it actually does, and how investors react.

When Treasury yields increase, mortgage rates also go up; when they decline, so do mortgage rates.

Housing market

The rising mortgage rates have slowed down the spring selling season.

According to the Mortgage Bankers Association, applications for a mortgage slightly rose last week following three weeks of declines.

As a result, the activity is muted.

Bob Broeksmit, the president and CEO of MBA, said:

“Even with this jump in activity, both purchase and refinance applications remain well below year-ago levels when rates were much lower.”

“The recent increase in mortgage rates, right at the start of the busy spring buying season, could cause prospective buyers to delay decisions until rates moderate.”

According to Fannie Mae’s survey, homebuyer sentiment fell to record lows in February.

Following three months of improvement, sentiment dropped and returned the index closer to its all-time survey low from October.

The most notable drops were associated with job security and home-selling conditions.

“While the current housing market may not look promising for sellers due to factors such as an increasing number of unsold homes, longer time on market, and decelerating price growth driven by high mortgage rates, there are still opportunities to be found,” said Xu.

For example, she noted that recent sales data shows the share of first-time homebuyers is higher than last year.

“As a result, sellers with starter homes may see robust demand and retain some bargaining power.”

Additionally, Xu said the lasting presence of hybrid working models offers more flexibility for homebuyers choosing where to live.

Instead of competing for a home in dense, central areas, buyers will move away from work if they don’t commute to work every day.

“This trend could make homes with easy access to public transportation systems more attractive to home buyers, which, in turn, enhances bargaining power for the sellers,” said Xu.

She also said that sellers who are also buyers could leverage their record-high equity even if they have to adjust expectations to lower asking prices.