Mortgage rates have climbed to their highest level in months, some unwelcome news for President Joe Biden in a critical election year.
As of Thursday, the average rate on a 30-year, fixed-rate mortgage was 7.17%, according to Freddie Mac. That is the highest mortgage rates have been since November of last year. The higher rates are crimping homebuying, a factor that has weighed on voter perceptions of the economy.
Mortgage rates peaked at about 7.8% in October, although they fell steadily through early January as investors expected the Federal Reserve to start cutting interest rates. Since then, though, inflation reports have come in hotter than expected, and the prospect of rate cuts has been pushed back.
The housing market has taken on water because of the higher interest rates. The Fed controls short-term interest rates, which affect rates throughout the economy, including mortgages.
While the labor market has been strong and jobs are readily available, discontent with the economy is high because of hot inflation and higher interest rates.
There has been an interesting dynamic at play in the housing market because of the higher mortgage rates. Many people are holding on to their homes and waiting to sell until mortgage rates are lower, creating a shortage of existing homes for sale.
At the peak of the pandemic, the Fed cut its interest rate target to near zero, and mortgage rates plunged to ultralow levels. At one point in early 2021, people were locking in 2.5% mortgages — the lowest level in postwar modern history.
The low rates prompted a rash of homebuying and investment, generating a boost in home construction. But then, the dynamic began changing quickly when inflation rose and the Fed hiked interest rates, pushing mortgage rates to the highest level since the turn of the century.
New home sales increased 8.8% from February to 693,000, according to a recent report from the Census Bureau. The number of new home sales is 8.3% higher than it was in March of last year, owing in part to dampened inventory of existing homes.
Existing home sales in March fell 4.3% to a seasonally adjusted annual rate of 4.19 million, the biggest decline in over a year. The rate of existing home sales was down 3.7% from the year before.
The housing market, like inflation, has been a thorn in Biden’s side. In response, he used this year’s State of the Union address to call for new policies intended to help housing affordability.
Among the proposals was providing a $5,000 tax credit for middle-class first-time homebuyers for two years, described as a form of mortgage relief.
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Also, he pitched a $10,000 credit for those who sell their starter homes. The administration described that credit as a response to the decrease in supply because pandemic-era homebuyers aren’t putting their homes on the market because of the higher mortgage rates.
But critics of the president say his plan could actually exacerbate housing prices by juicing demand.