Prospective homebuyers are facing a tough decision as the average long-term U.S. mortgage rate has surged above 7% this week, reaching its highest level in nearly five months. According to mortgage buyer Freddie Mac, the average rate on a 30-year mortgage rose to 7.1% from 6.88% last week, marking a significant increase from the 6.39% rate recorded a year ago.
The rise in mortgage rates has left potential homebuyers grappling with whether to make a purchase now before rates climb even higher or wait in hopes of a decrease later in the year. Sam Khater, Freddie Mac’s chief economist, highlighted the uncertainty, stating, “Last week, purchase applications rose modestly, but it remains unclear how many homebuyers can withstand increasing rates in the future.”
The increase in mortgage rates comes after a period of relative stability, with rates remaining below 7% since early December. However, recent stronger-than-expected reports on employment and inflation have fueled doubts about when the Federal Reserve might begin lowering its benchmark interest rate, leading to a spike in bond yields.
While economists anticipate a moderate easing of mortgage rates later this year, the current trend is a setback for home shoppers during the spring homebuying season. The average rate on a 30-year mortgage remains well above 5.1%, discouraging some homeowners from selling and giving up their lower fixed-rate mortgages obtained in previous years.
As the cost of financing a home continues to rise, the average rate on 15-year fixed-rate mortgages used for refinancing has also increased this week. With forecasts suggesting that mortgage rates will remain above 6%, prospective homebuyers are left to navigate a challenging market with higher borrowing costs.