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.