Mortgage rates jump after two weeks of declines

Mortgage rates are back up again following two weeks of declines that did little to boost homebuyer demand.

The rate on the 30-year fixed mortgage jumped to 5.51% from 5.30% the week prior, according to Freddie Mac. While lower than the 5.81% registered in late June, the average rate is still more than 2 percentage points higher than the beginning of the year.

Rates add to the challenging affordability conditions homebuyers are facing that include persistently high inflation and now newfound recession worries. Homeowners, too, are also spooked by recent rate volatility, thinking twice before tapping into their equity – now more expensive than before.

“Mortgage rates are volatile as economic growth slows due to fiscal and monetary drags,” Sam Khater, Freddie Mac’s chief economist, said in a press statement. “With rates the highest in over a decade, home prices at elevated levels, and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans.”

Last week, homebuyers got a short reprieve when rates dropped a half-point after the yield on the 10-year Treasury – which mortgage rates track – dropped below 3% for the first time since early June.

But that reversed this week. After June’s elevated inflation reading Wednesday came in higher than expected, the yield rose sharply — taking mortgage rates with it — as the likelihood of the Federal Reserve hiking its benchmark by one percentage-point rate this month got stronger.

The result is a slowing housing market that’s hard to ignore.

A record-high 81% of consumers think the economy is on the “wrong track,” according to the latest homebuyer sentiment survey from Fannie Mae, with a plurality of respondents saying it would be difficult to get a mortgage — the first time in nearly seven years.

“High mortgage rates and record high home prices have informed that sentiment for months now already,” Keith Gumbinger, vice president of HSH.com, told Yahoo Money. “It's true that mortgage rates did dip last week, but rates have risen since late last week, and much of that decline has likely already disappeared.”

The volume of mortgage applications decreased for the second week in a row, down 1.7% from a week earlier, according to the Mortgage Bankers Association survey for the week ending July 8. The purchase index fell 14% on an unadjusted basis from the previous week, and was down 18% from the same week one year ago.

“Summer is the busiest time of the year, so a slowdown during this time could obviously mean a much slower year,” George Ratiu, manager of economic research at Realtor.com, told Yahoo Money. “Today’s market is not what it was a few months ago.”

Sky-high rent prices are also foiling potential buyers' plans to purchase anytime soon. According to the National Association of Realtors (NAR), at least one in five renters spend at least 50% of their monthly income on rent.

“Some of their budgets are really tight and it can be very difficult to get a downpayment,” Nadia Evangelou, senior economist and director of forecasting at NAR, told Yahoo Finance. “The transition from renters to homeownership is even more challenging now.”

For instance, the national median listing price for active listings was $450,000, up 16.9% compared with last year, according to Realtor.com. That and rising rates are making buyers think twice.

Approximately 60,000 home-purchase agreements fell through in June, the highest percentage registered since March and April 2020, when economic uncertainty ran high during the onset of the COVID pandemic, according to Redfin.

“Inflation has an immediate and direct impact on household finances,” Ratiu said. “The prices of food, apparel, services and gasoline are much higher. We’re likely to see at least on the demand side of housing a significant continued decline we’re already observing – there’s only so much money to go around each month.”

Homeowners have also felt the pinch of rising borrowing costs.

With rates more than 2 percentage points higher than the start of the year, very few homeowners would benefit from a refinance today. According to the MBA, the refinance activity remains 80% lower than the same week a year ago.

“For certain homeowners who bought their home in the last two to three years, and have a mortgage at 2.6% – today’s market is going to be quite challenging,” Ratiu said. “Especially if they want to upgrade. If they want a bigger house, not only is it a higher price tag but now mortgage rates are much higher.”

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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