Mortgage rates are now at their highest level in months as the Federal Reserve prepares for what will likely be yet another interest rate hike later in July.
As of this week, the average rate on a 30-year fixed-rate mortgage was 6.81%, up a tenth of a percentage point from the week before, according to Freddie Mac. Mortgage rates are now the highest they have been since November when they skyrocketed to above 7%.
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This most recent number is up from a recent trough of 6.08% registered in February. The rate on an average 15-year, fixed-rate mortgage is now sitting at 6.24%.
The higher mortgage rates come as the Fed signals its target interest rate (which is a different, very short-term rate) will likely be raised once again. The central bank paused its monetary tightening during its June meeting, although Federal Open Market Committee participants made it clear that the pause was likely to be temporary in nature.
The Fed’s updated projections that were released following its last meeting showed that central bank officials expect two more rate increases over the next year, more than penciled in its spring projections.
“Mortgage rates continued their upward trajectory again this week, rising to the highest rate this year so far,” said Sam Khater, Freddie Mac’s chief economist. “This upward trend is being driven by a resilient economy, persistent inflation, and a more hawkish tone from the Federal Reserve.
“These high rates combined with low inventory continue to price many potential homebuyers out of the market,” Khater added.
The current high rates are incredibly elevated from the ultra-low levels notched during the coronavirus pandemic when the Fed slashed its interest rate target to near zero in order to insulate the economy from a deep recession.
In fact, during much of 2020 and 2021, homebuyers were able to lock in mortgages at below 3% — a dynamic that is now apparent in sales of existing and new homes.
Existing home sales in May were down more than 20% from the year before. That is in part because as mortgage rates cruised upward with the Fed’s tightening, those who purchased homes during the pandemic and locked in very low mortgages are holding off on selling their houses in order to keep those low rates.
Interestingly, sales of new homes have shot up recently. The latest report by the Census Bureau showed that sales of new homes unexpectedly surged in May, a sign that a lack of supply of houses for sale has driven buyers to seek out newly constructed units.
New home sales in May rose 12.2% in May to a seasonally adjusted annual rate of 763,000. Sales were 20% higher than in May 2022.
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People holding on to their pandemic-era home purchases means less existing home inventory on the market, making new homes more of a hot commodity.
The lack of supply has also lifted home construction. The number of multifamily units under construction hit a record in May — 994,000. That surge in supply is good news as it should help lower rent pressures for families across the country.