The average rate on the widely-followed 30-year fixed mortgage made headlines by crossing the 7% mark Monday, reaching 7.04%, as reported by Mortgage News Daily. This development follows a huge spike in rates Friday, driven by January employment report.
"The strong job market is good news for the spring buying season as higher household incomes are a necessary component, but it also means that mortgage rates are not likely to drop much further at this point," said Michael Fratantoni, chief economist at the Mortgage Bankers Association.
Mortgage rates underwent substantial fluctuations since the summer, briefly hitting a 20-year high of 8% in October before experiencing a huge drop. Investors interpreted signals suggesting that the Federal Reserve was concluding its latest round of interest rate increases, leading to a decrease in rates.
While mortgage rates do not directly reflect the Fed's movements, they are loosely connected to the yield on the 10-year Treasury, influenced by the central bank's economic evaluations. Matthew Graham, Chief Operating Officer at Mortgage News Daily, said that the accelerated rate increase over the past two days is not unforeseen, given the market's overly positive outlook on the Fed's rate cut possibilities. The Fed actively emphasizes that economic data plays a pivotal role in making its decisions.
As mortgage rates declined over the past two months, potential homebuyers returned to the market, aligning with a small increase in homes for sale. However, the overall inventory stays historically low, making the competition intense and keeping home prices obnoxiously high. Despite these obstacles, analysts hope for an improvement in the housing market in 2024.
In December, the median price of existing homes sold was $382,600, portraying a 4.4% increase from December 2022 and making it the sixth consecutive month of year-over-year price gains. The full-year median price of $389,800 reached a record high, highlighting the challenges of high prices and low supply in the housing market.
Affordability remains a major concern, with even slight rate swings hugely impacting monthly payments. A mere half-percentage-point change can mean more than $200 per month for buyers of median-priced homes. The forthcoming trajectory of mortgage rates in 2024 is uncertain- while positive economic data may maintain rates above 7%, the role of inflation will be significant in shaping the outlook.
