(PresidentialHill.com)- Not too long ago, mortgage rates were at all-time lows, sparking people around the country to look for new homes to buy or to refinance their existing mortgages.
In just a few short months, though, that has all changed.
Mortgage News Daily reported this week that the average rate on 30-year fixed-rate mortgages now stands at 50.2%. That marks the first time since 2011 that the rate went above 5%, except for two days back in 2018 when it did so.
Last year at this time, the average rate for those mortgages was much lower, at 3.38%.
Rates have been increasingly steadily since the beginning of 2022. There are a few contributing factors to this, including the fact that the Federal Reserve has been enacting some policies in an effort to curb rising inflation, as well as fight against the economic turmoil happening around the globe due to Russia invading Ukraine.
The reason mortgage rates rise when the Fed takes action like this is that rates loosely follow the yield on the U.S. 10-year Treasury.
These much higher mortgage rates is obviously not good news to people who are looking to buy homes in the U.S. It’s a double whammy for potential homebuyers: Not only are mortgage interest rates much higher than they were a year ago, home prices are up significantly as well.
A recent report from CoreLogic revealed that average home prices soared by 20% from February 2021 to February 2022. That marked the 12th month in a row that the average home price in the country increased year-over-year.
These two massive increases in price are driving some people out of the home-buying market altogether. Entire categories of homes that used to be affordable for most people are now out of reach.
It doesn’t look like this is going to change any time soon, either. Inflation keeps getting worse, and the Fed is aiming to take even more decisive action to try to curb it and prevent the country from entering a full-blown recession. That could have even more dramatic negative effects on the average mortgage interest rate.
Bonds were experiencing a rough go of it earlier this week, but then, Lael Brainard the vice chair of the Fed, released comments saying the Fed would be reducing its balance sheet even more than they did last time. Brainard added that the pace of these reductions would be even quicker than before, driving bonds in the market down even more.
As Mortgage News Daily’s chief operating officer, Matthew Graham, commented about Brainard’s comments:
“To hear her speak about bond-buying adjustments in such blunt, urgent terms is unsettling for the market with just over 24 hours to go before we see the minutes from the most recent Fed meeting. At this point, traders are taking Brainard’s comments to foreshadow an extremely unfriendly conversation about bond buying to be revealed in the minutes.”
So, what effect will all this have on the U.S. housing market? It’s possible that it could eventually slow down the hot sellers’ market since there might be fewer buyers.
But, even that won’t happen overnight, even with interest rates rising.
