By
Tolu Ajiboye
November 3rd, 2023
Mortgage rates jumped 7.1% Thursday following last week’s 28-year low decline in homeownership applications due to raging inflation.
Mortgage rates have climbed back over 7% following increased higher yields from inflation fears. According to Mortgage News Daily, the 30-year fixed mortgage average rate jumped to 7.1% on Thursday. Generally, increased concern that inflation is not abating is causing bond yields to rise, with the Fed set to hike rates again. However, although another interest rate hike appears certain, it might not necessarily be a long-term occurrence anymore.
The inflation-triggered mortgage rate climb satisfied a common trend of mortgage rates loosely following the 10-year Treasury yield.
Mortgage News Daily chief operating officer Matthew Graham weighed in on the development, saying:
“Rates continue to move at the suggestion of economic data, and the data hasn’t been friendly. This is scary considering this week’s data is insignificant compared to several upcoming reports.”
The increase in mortgage rates has also caused a decline in purchase applications. Following three consecutive weeks of reduced activity, Mortgage Bankers Association president and chief executive officer Bob Broeksmit noted:
“After solid gains in purchase activity to begin 2023, higher rates, ongoing inflationary pressures, and economic volatility are giving some prospective homebuyers pause about entering the housing market.”
Realtor.com senior economist George Ratiu embellished Broeksmit’s stance by pointing to a record amount of debt among consumers. In addition to piling mortgages, these debts also include personal loans, auto loans, and student loans. Ratiu added that “with rising interest rates, financial burdens are expected to increase, making consumer choices more difficult in the months ahead.”
Putting Inflation-Triggered Mortgage Rates Rise in Perspective
The mortgage application drawdown, which hit a 28-year low last week, sees a buyer pay $230 more monthly for a $400K home. This scenario assumes that the $400,000 mortgage constituted a 20% down payment on a 30-year fixed loan. The higher monthly payment, including principal and interest, also represents an increase from a month ago. Furthermore, today’s charge is roughly 50% higher than a year ago, when rates averaged 4%.
Rates were over 7% last October, representing the highest level in more than 20 years at the time. However, these rates pulled back in the subsequent months as inflation appeared to wane. In early to mid-January, rates hovered around 6% and stoked strong buyer demand for homes.
With rates slightly lower at the beginning of the year, the housing market appeared to be on the mend. However, this recovery has been stopped, and rising rates seem to be on a relentless path. The National Association of Realtors pointed out that rates have jumped by 100 basis points since the beginning of February.
The fact that rates are on the rise again does not necessarily imply that this trend would hold sway long-term. According to Graham, we could see some correction “if the bigger-ticket data has a friendlier inflation implication.” However, traders might be skeptical about aggressively lowering rates until they are convinced of “meaningfully lower inflation.”