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Mortgage Rates Jump Higher: Freddie Mac

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Buyers are not feeling the brakes. After five weeks of decline, mortgage rates have rebounded.

The average interest rate on a 30-year fixed-rate loan rose to 6.39%, a change of 0.12 percentage points over the past seven days, according to weekly rate data from Freddie Mac. An even bigger jump was seen in the 15-year fixed-rate loan rate, rising 0.22 percentage points to 5.76%.

In a press release, a change in market expectations led to the rate hike this week, according to Sam Khater, chief economist at Freddie Mac. Khater said that although home prices are stabilizing, low inventory and affordability remain a challenge for many potential buyers.

“Unless the rates fall to the mid-five per cent range, there will be only a modest recovery in demand,” he added.

Mortgage rates continue to affect the housing market in many different ways.

During the height of the pandemic, super-low mortgage rates fueled buyer demand, driving home sales and prices to new highs. Buyers were able to afford larger, more expensive homes thanks to lower monthly payments from lower borrowing costs. The lower rates also gave existing homeowners new ammunition to refinance their home loans.

The current market is a completely different animal.

According to a recent survey by listing site Realtor.com, the vast majority of potential home sellers (85%) intend to buy a second home. With mortgage rates swinging between 6% and 7%, these homeowners now face the prospect of trading in their current mortgage rate that is twice as high.

As a result, 82% of potential sellers are feeling trapped by their low rates. More than half are holding off on listing their homes until mortgage rates come down.

With more landlords putting their sale plans on hold, there is a dearth of new listings in the market, leaving buyers with fewer options to choose from.

Rates rise on signs of economic resilience

The economy may be cooling down, but it is taking its toll.

Recent readings on inflation, employment and wage growth are all moving in the right direction (i.e. lower). But these improvements have not been enough to satisfy the Federal Reserve, which says we have a long way to go before the economy returns to normal.

Bond yields “have moved higher, taking mortgage rates with them” in the past week, Hannah Jones, economic data analyst at Realtor.com, said in a statement.

What’s more, there are still concerns that the Fed will continue its accommodative monetary policy of raising the federal funds rate, as inflation remains well above the target range of 2%. If the Fed chooses to raise that rate – which raises the cost of borrowing and in turn lowers consumer prices – it will put even more upward pressure on mortgage rates.

Core inflation, a metric that excludes the fluctuating cost of food and fuel, is of particular concern to the central bank. Headline inflation (or overall inflation) has come down steadily over the past few months, not core inflation.

“Core inflation has basically moved sideways with no apparent downside,” Federal Reserve Governor Christopher Waller said in a. speech on Friday.

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