Mortgage Rates Are Getting Close to 7% Again

Mortgage rates have started climbing again, reaching the highest level since mid-December. The 30-year fixed-rate mortgage jumped to an average of 6.9% this week, Freddie Mac reports. Home prices also are weighing on buyers’ budgets, with the median price nationwide surging last month to a record $379,100, the National Association of REALTORS® reported.

What’s behind the latest uptick in mortgage rates?

“Strong incoming economic and inflation data has caused the market to reevaluate the path of monetary policy, leading to higher mortgage rates,” says Sam Khater, Freddie Mac’s chief economist. “Historically, the combination of a vibrant economy and modestly higher rates did not meaningfully impact the housing market. The current cycle is different than historical norms, as housing affordability is so low that good economic news equates to bad news for home buyers, who are sensitive to even minor shifts in affordability.”

Some buyers are current homeowners who are leveraging their record-high equity to purchase their next property. Thirty-two percent of home sales in January were cash deals—an elevated share of the market, NAR’s data shows.

Overall, homebuyer demand has remained strong against higher home prices. Existing-home sales climbed 3.1% last month compared to December. But falling mortgage rates were the impetus for January’s sales.

“These higher mortgage rates are going to make it harder, particularly for first-time home buyers who do not have equity to roll into the purchase of a home,” says Lisa Sturtevant, chief economist at Bright MLS. “We’ve been talking about the growing affordability challenge for a while, but, so far, buyers have persisted. The higher rates we’re seeing now likely are going to lead more prospective buyers to sit out the market and wait for rates to come down.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Feb. 22:

• 30-year fixed-rate mortgages: averaged 6.9%, increasing from last week’s 6.77% average. Last year at this time, 30-year rates averaged 6.5%.
• 15-year fixed-rate mortgages: averaged 6.29%, increasing from last week’s 6.12% average. Last year at this time, 15-year rates averaged 5.76%.