The average rate on a 30-year mortgage has increased to 7.03% from 6.94% last week, according to Freddie Mac. This rise marks a setback for homebuyers as the U.S. housing market is already experiencing a slowdown due to elevated borrowing costs and rising prices.
Higher mortgage rates can significantly impact borrowers, adding hundreds of dollars to their monthly costs and limiting their purchasing options. The average rate on 15-year fixed-rate mortgages also rose to 6.36% from 6.24% last week.
Mortgage rates are influenced by various factors, including the bond market's response to the Federal Reserve's interest rate policy and movements in the 10-year Treasury yield, which serves as a benchmark for home loan pricing.
Yields rose earlier this week due to concerns about weak demand for Treasury bonds following U.S. government auctions and a surprising report indicating strengthening consumer confidence, contrary to expectations of a decline.
The Federal Reserve has maintained the federal funds rate at its highest level in over two decades to combat high inflation. The central bank has indicated it will not cut interest rates until it is confident that price increases are slowing sustainably to its 2% target.
Despite a recent decline, the average 30-year mortgage rate remains significantly higher than two years ago, standing at 5.09%. The increase in rates has negatively impacted the spring homebuying season, traditionally the busiest time for home sales.
Both sales of existing and new homes have slowed in recent months as buyers grapple with rising mortgage rates and prices. Pending home sales data for April suggests a potential further slowdown in the housing market.
The National Association of Realtors reported a 7.7% drop in pending home sales in April, the first decline since January. However, the anticipated rate cut by the Federal Reserve later this year is expected to improve affordability and supply, potentially boosting home sales.
As mortgage rates continue to rise, monthly payments for homebuyers have also increased. The national median monthly payment on home loan applications rose to $2,256 in April, a 2.5% increase from the previous month and 6.8% higher than a year earlier, according to the Mortgage Bankers Association.
