Washington, D.C. CNN –
US mortgage rates rose this week, approaching 7% and hitting their highest level since November.
The 30-year fixed-rate mortgage averaged 6.96% for the week ended July 13, up from 6.81% the week before, according to data from Freddie Mac released on Thursday. A year ago, the 30-year fixed rate was 5.51%.
The average mortgage rate is based on mortgage applications Freddie Mac receives from thousands of lenders across the country. Only borrowers who make a 20% down payment and have excellent credit are included in the survey.
Mortgage rates have stayed above 5% for all but one week of the past year, even reaching a peak of 7.08% last seen in November. Interest rates had fallen and remained below 6.5% for most of the spring. In late May, interest rates started to rise as uncertainty grew over the debt ceiling standoff, and interest rates remained elevated as economic data showed inflation was more stubborn than expected.
The inflation picture has improved and the consumer price index has fallen for 12 consecutive months. It is now at its lowest level since March 2021, according to data released on Wednesday.
“Incoming data suggests inflation is easing, falling to its lowest annual level in more than two years,” said Sam Khater, Freddie Mac’s chief economist. “However, the rise in housing costs, which accounts for a large part of inflation, remains stubbornly high, largely due to low inventories relative to demand.”
“Looking ahead, we can continue to expect inflation to slow as the growth of the shelter index, which is the largest contributor to inflation growth, peaked in April and has been on a downward trend ever since,” Jiayi Xu said , Economist at Realtor.com.
But while the improvement in inflation is encouraging, she said, the level itself is still well above the Federal Reserve’s 2 percent target and the job market remains resilient.
“The strong labor market will continue to stimulate demand in the economy, raising prices and contributing to higher inflation,” Xu said. “Therefore, it’s still very likely that there will be another rate hike later in July.”
On the other hand, she said, the encouraging inflation data could serve as the basis for another pause in rate hikes, a “wait and see” approach, at the upcoming Fed meeting, which could help reverse the recent hike in mortgage rates.
“This in turn would create a more favorable environment for those who want to buy a house in the coming fall,” Xu said.
Even as the average mortgage rate rose towards 7% and last week hit its highest level this year, mortgage applications were still picking up slightly, according to the Mortgage Bankers Association.
“The increase is due to small increases in FHA and VA purchase applications,” said Bob Broeksmit, MBA President and CEO. “MBA continues to expect mortgage rates to drop to around 6% by the end of the year, which should bring more buyers into the market.”
One reason some buyers are holding on despite higher interest rates is the strong labor market.
“Positive labor market data suggests that households remain in good economic condition and can approach various purchases, including housing, with some confidence,” Xu said.
But the cost of buying a home is still incredibly high for many. Elevated mortgage rates and still-high house prices continue to pose significant home affordability challenges, slowing home buying and putting pressure on home and rental prices, she said.
“While both buyers and sellers have withdrawn activity from the hustle and bustle of the pandemic-era, buyers have adapted more quickly to the environment of higher mortgage rates as the number of homes for sale per year declined from late June. ‘ said Xu.
The low supply of houses on the market is not likely to change much for the time being, she said.
“We expect the inventory of homes for sale to see a slight 5% decline for the full year,” Xu said. “Luckily for buyers, new homes remain an option as builders continue to add homes, with a slightly greater focus on affordable prices.”