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Home Buying Home Prices Mortgages Real Estate

Mortgage Interest Rate Uptick?

Homebuyers might want to temper their expectations for significant declines in mortgage rates as the spring housing season commences. The inflation rate increased to 3.2% year-over-year in February, as highlighted in the latest consumer price index report. This marks the third consecutive month of rising inflation rates, diverging further from the U.S. Federal Reserve’s 2% target.

Consequently, the Fed is likely to maintain elevated interest rates for an extended period in its effort to curb inflation and ensure a “soft landing” for the economy. Unfortunately, higher interest rates spell trouble for the housing market. Although mortgage rates are independent of the Fed’s rates, they tend to follow a similar trajectory. For instance, 30-year fixed-rate mortgages had an average rate of 6.88% in the week ending March 6, as per Freddie Mac data.

The combination of high mortgage rates, elevated home prices, and a limited housing inventory has complicated the market for many buyers, especially first-time purchasers facing affordability challenges. Mortgage rates saw a decrease in December when the Fed hinted at potential rate cuts, stabilizing in the mid-6% range afterward. However, they began to rise again following new data indicating a stronger-than-desired economy, complicating the Fed’s efforts to reduce inflation.