Mortgage Rates Inch Higher to Nearly 7%

This week mortgage rates rose slightly, moving closer to the 7% mark for 30-year terms. Fixed mortgage rates increased across the board while adjustable mortgage rate decreased or remained about the same.

As of April 20, here are the current mortgage interest rates without discount points, unless otherwise stated:

FHA 30-year loans: 6.08 % with 0.06 % (up from the 6% of a week earlier).

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Mortgage rates are a product of broader economic conditions, such as inflation and employment statistics as well as the Fed's action and banking stability. Recent data shows a resilient, but cooling, economy. This has led many to believe that the Fed will raise its target rate next month.

Hannah Jones, economist data analyst at Realtor.com

The Federal Reserve raised its benchmark rate in March by only 25 basis points. This was less than the 50 basis point increase that had been anticipated because of high-profile bank failures during the month. Federal Open Market Committee policymakers will meet on May 2 and 3 to decide whether or not they will continue raising the federal funds rates.

George Ratiu is the chief economist of Keeping Current Matters. He says that despite clear signs of stabilization in prices, the central banks will likely continue to raise rates at their current rate. According to the March Consumer Price Index report, inflation continues to rise at a rate of 5% per year. This is the lowest pace in almost two years but well above the Fed’s 2% target.

Ratiu says that "inflation is still a major concern and the Federal Reserve remains in a hawkish posture, ready to increase the policy rate by 25 basis points during its meeting in May."

Ratiu says that the 30-year fixed rate mortgage will remain between 6% and 7% in the interim, because "the monetary policy is on a tightening course, while price growth continues to gain." Mortgage rates are a major concern for homebuyers. Recent increases in rates have led to a drop in mortgage applications and sales, even though spring is traditionally booming season.

Indicator of The Week: A Year of the "New Normal"

Many economists will point out an ominous anniversary in a moment's reflection. In the week preceding this one, mortgage rates were at 5% for over a decade. Since then, mortgage rates have risen above the 5% mark, breaking through 6% in August this year and exceeding 7% two months later, in October.

Ratiu says that "affordability is still a major concern for buyers but many accept the current rates as being the new norm."

Some homebuyers are adapting to current rates, but others still refuse to take out a mortgage with a rate of near 7%. The National Association of Realtors' existing-home sales data from last week shows that housing transactions are 22% lower than they were in March 2022 when rates were 5%.

Last year's homebuyers were scared by mortgage rates of 5%, but today's buyers would jump at the chance to lock in that rate. According to a new survey by U.S. News, 66% of buyers wait for mortgage rates fall further before they enter the market. 28% of them are waiting for rates to fall below 6% and 30% are waiting below 5.5%.

Sam Khater, Freddie Mac's Chief Economist, agrees with our survey and says that the demand will "modestly" recover until rates fall into the mid-5% area. In 2023 rates are expected to drop to the mid-5% range, but this won't happen until the end the year. At that point, demand could be even further out of line with supply.

The affordability of mortgages is not the only factor keeping buyers away this spring. Lack of inventory in the housing market has made it difficult for buyers to enter the market. According to Zillow, the inventory of homes for sale improved modestly in march but is still well below levels before the pandemic.

Current homeowners are also contributing to the low number of homes on the market. They're reluctant to sell and exchange their current mortgage rates below 3% for higher ones. In our survey, we found that 25% of those who plan to purchase a new home in the coming year do not intend to sell their existing home. Of the homeowners who plan to sell, 56% worry that they will regret giving up their lower mortgage rates.

I don't fault them. It's not surprising that many homeowners are feeling locked in because of their low monthly payments. Mortgage rates will probably never drop below the record-low 2.65% established in January 2021.