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Hopes for a better spring housing market dimmed this week as mortgage interest rates, which had moderated since the first of the year, went up again last week.
The Mortgage Bankers Association (MBA) reports the rise in interest rates was so abrupt that it sent mortgage applications into a tailspin. New applications plunged 13.3% from the previous week.
Joel Kan, MBA’s vice president and deputy chief economist, attributes the drop to rising rates, which make homes less affordable.
“Mortgage rates increased across all loan types last week, with the 30-year fixed rate jumping 23 basis points to 6.62% – the highest rate since November 2022,” Kan said. “The jump led to the purchase applications index decreasing 18% to its lowest level since 1995.”
The nearly quarter-point rise in just seven days can be traced to rising rates on U.S. Treasury bonds. The rate on the Treasury’s 10-year bond, currently at 3.9%, has been rising amid inflation concerns.
That rate has a direct impact on interest rates for mortgage loans. Kan says the increase comes at a bad time for the housing market.
“This time of the year is typically when purchase activity ramps up, but over the past two weeks, rates have increased significantly as financial markets digest data on inflation cooling at a slower pace than expected,” Kan said. “The increase in mortgage rates has put many homebuyers back on the sidelines once again, especially first-time homebuyers who are most sensitive to affordability challenges and the impact of higher rates.”
Homebuyers face another challenge in addition to rising interest rates. Home prices are still going up.
In fact, Zillow this week reported that heading into the spring season, home values are up 6% from a year ago and are 39% higher than in 2020. The big reason for that is the lack of available homes for sale.
Zillow reports the number of homes for sale is the second-lowest on record — meaning stiff competition for well-priced homes.