By ALEX VEIGA (AP Business Writer)
LOS ANGELES (AP) — The typical long-term U.S. mortgage rate rose this week to its highest point since late November, causing more difficulty for home buyers during the busiest time of the year for the housing market.
The average rate on a 30-year mortgage increased to 7.17% from 7.1% last week, according to Freddie Mac on Thursday. A year ago, the rate was at 6.43%.
The costs of borrowing on 15-year fixed-rate mortgages, which are popular for homeowners refinancing their home loans, also went up this week, with the average rate rising to 6.44% from 6.39% last week. A year ago, it was at 5.71%, according to Freddie Mac.
When mortgage rates go up, they can increase monthly costs for borrowers by hundreds of dollars, restricting their buying power at a time when the U.S. housing market is still facing a shortage of homes for sale and increasing home prices.
The average rate on a 30-year mortgage has now risen for four consecutive weeks. The latest increase brings it to its highest level since November 30, when it reached 7.22%.
After reaching a 23-year high of 7.79% in October, the average rate on a 30-year mortgage had stayed below 7% since early December due to expectations that inflation would decrease enough this year for the Federal Reserve to start lowering its short-term interest rate.
Mortgage rates are affected by various factors, including how the bond market responds to the Fed’s interest rate policy and the changes in the 10-year Treasury yield, which lenders use to determine home loan prices.
Home loan rates have been generally increasing after a string of reports this year showing inflation remaining hotter than anticipated, leading to doubts about how soon the Fed may decide to begin reducing its benchmark interest rate. This uncertainty has pushed up bond yields.
Top Fed officials have recently stated that they could maintain high interest rates for a period of time until they are fully confident that inflation is moving down toward their target of 2%.
The increase in mortgage rates in recent weeks is unwelcome for home buyers during this spring homebuying season. Sales of previously owned U.S. homes dropped last month as homebuyers dealt with elevated mortgage rates and increasing prices.
While the decrease in mortgage rates helped boost home sales in January and February, the average rate on a 30-year mortgage is still significantly higher than the 5.1% average from just two years ago.
The large difference in rates between now and then has limited the number of previously owned homes on the market because many homeowners who bought or refinanced more than two years ago are hesitant to sell and give up their fixed-rate mortgages below 3% or 4% — a trend real estate experts call the “lock-in” effect.
“The surge in mortgage rates has dampened the mortgage market,” said Bob Broeksmit, CEO of the Mortgage Bankers Association. “Together with weaker affordability conditions, the lock-in effect continues to reduce existing inventory levels as many homeowners are still unwilling to sell their home to buy a new one at a higher price and mortgage rate.”
Builders have been able to reduce the impact of higher home loan costs this year by offering incentives, like covering the cost to lower the mortgage rate for homebuyers. This has helped increase sales of newly built single-family homes by 8.8% in March compared to the previous year, according to the Commerce Department.
“Due to rates staying high for a longer time, many homebuyers are adjusting, as shown by this week’s report that sales of newly built homes saw the biggest increase since December 2022,” said Sam Khater, Freddie Mac’s chief economist.
