Bob Doll, CIO of Crossmark Global Investments, argues that a key reason is that some of the “supply constraint problems” are beginning to be resolved, noting that even if inflation starts to fall, it’s still at “unacceptable levels ” will be.
The average interest rate on a 30-year mortgage in the US edged up again this week, reaching levels not seen in more than three years.
Mortgage buyer Freddie Mac said on Thursday that the average interest rate on the 30-year loan rose to 4.72% this week from 4.67%, the latest in a series of rapid increases. Over the past three months interest rates have risen by 1.5% – the fastest rate of growth since May 1994. A year ago the 30-year interest rate was 3.18%.
GALLUP SURVEY SHOWS INFLATION IS AMERICANS’ MAIN ECONOMIC CONCERN
“The rise in mortgage rates has moderated buying activity, so monthly payments for those looking to buy a home are up at least 20 percent year over year,” Sam Khater, Freddie Mac’s chief economist, said in a press release.
The average interest rate on a 15-year mortgage — which is more popular among homeowners who choose to refinance — rose to 3.91% from 3.83% last week.
Newly completed developments of homes for sale built by developer KB Homes are pictured January 4, 2011 in Carlsbad, California. (REUTERS/Mike Blake/Reuters Photos)
The new interest rates come as American consumers grapple with the hottest inflation in four decades.
Rising consumer prices have inflicted financial pain on millions of US households, particularly low-income families, eroded wage growth and presented a massive policy challenge to President Biden, whose approval ratings associated with rising prices have plummeted.
It has also forced the Federal Reserve to concede that rising prices are not temporary and to take steps to dramatically normalize policy. Fed policymakers voted in March to raise the benchmark overnight interest rate by 25 basis points and forecast at least six more hikes of a similar size over the next year.
But officials have since adopted a more hawkish stance, with some openly signaling their support for a faster half-a-point increase at their May meeting – meaning mortgage rates are likely to keep rising.
A Pending Sale sign stands next to a residential lot in Madison County, Mississippi, Tuesday, March 16, 2021. ((AP Photo/Rogelio V. Solis) / AP Newsroom)
Last week, a key inflation measure closely monitored by the Federal Reserve, rose 6.4% year-on-year in February as widespread supply disruptions, extraordinarily high consumer demand and labor shortages fuel rapidly rising prices.
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The PCE report was accompanied by data on household spending, which showed consumer spending fell sharply in February, rising just 0.2% – compared to a 2.7% increase in January.
The data is further evidence of price increases, illustrated by a separate metric – the consumer price index – which showed inflation in February rose 7.9% yoy, a new 40-year high.