U.S. 30-Year Mortgage Rates Reach Yearly High of 6.81% Amidst Fed's Inflation-Fighting Measures

The average U.S. 30-year mortgage rates have reached 6.81%, marking the highest level so far this year, as stated in Freddie Mac's mortgage market survey. This surge in mortgage rates can be attributed to the Federal Reserve's proactive monetary policy measures implemented since last year, aiming to restrain inflation. Consequently, rates had climbed to 7.08% in November 2022, indicating the highest level witnessed in two decades.

The prevailing interest rates for 30-year mortgages, which are widely preferred among U.S. homebuyers, stood at an average of 6.71% last week. Comparatively, a year ago, these rates were at 5.3%, as per Freddie Mac's data. The recent spike in the yield on the 10-year Treasury note, serving as a benchmark for mortgage rates, breached the 4% mark on Thursday, influenced by concerns surrounding potential interest rate hikes in light of labor market data.

Freddie Mac's chief economist, Sam Khater, highlighted that this upward trend in mortgage rates is driven by a resilient economy, persistent inflation, and a more hawkish stance from the Federal Reserve. Consequently, the combination of these elevated rates and limited housing inventory continues to price out numerous potential homebuyers from the market.

Considering the strong condition of the employment market, I anticipate that mortgage rates will persist in their ascent. This, in turn, poses a challenge to the Federal Reserve's efforts in tackling inflation. It is probable that the Fed will opt for rate hikes in July, September, and potentially November, in line with my outlook. As long as the job market remains at historically low levels, it will exert significant upward pressure on core inflation—an indication that the signals for rate increases are becoming increasingly evident.

As The Blind Economist, I have always found the Freddie Mac survey to be my preferred benchmark for tracking mortgage rates during my tenure as CEO of e-mortgage corp.

A 30-year mortgage with a loan amount of $100,000 and an interest rate of 6.81% would result in a monthly payment of approximately $625.79. In contrast, at an interest rate of 5.3%, the monthly payment would be around $554.54. This represents a difference of about $71.25 per month,  per 100k, highlighting the impact of interest rates on mortgage payments.

In its latest update, the Mortgage Bankers Association (MBA) revealed that the market composite index, a measure of U.S. mortgage application volume, experienced a decline of 4.4% compared to the previous week. This dip can be attributed to the recent increase in mortgage rates. As an economist, I have consistently stressed the significance of timing when it comes to purchasing a house and securing a favorable interest rate. It is crucial to prioritize homeownership in the present rather than attempting to predict market fluctuations, whether in real estate or the stock market. The prudent approach is to acquire a property at the best available rate and consider options such as buying down the rate or refinancing in the future. Waiting for the ideal rate bears the risk of property values rising during the waiting period, thereby undermining the anticipated advantage. It is paramount to seize current opportunities, as having one tangible asset outweighs the speculative gains of hypothetical future prospects.

A simpler way to state it would be: one in the hand is better than two in the bush.

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Hard at work,

Michael Anthony Francis

The Blind Economist 

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