US Mortgage Rates increase to 7.1% due to high inflation

Homebuyers in the United States are facing rising mortgage rates once again, as average rates on 30-year fixed-rate mortgages rebounded to 7.1% later this week.

Homebuyers in the United States are facing rising mortgage rates once again, as average rates on 30-year fixed-rate mortgages rebounded to 7.1% later this week. This is a result of growing concerns that inflation won't cool as quickly as previously predicted and is pushing bond yields higher. In turn, mortgage rates usually move in favor of 10-year US Treasury yields.

Mortgage rates in the United States surpassed 7% last October - their highest level in more than 20 years. However, they have dropped in the following months as inflation appeared to have cooled. In mid-January of this year, this interest rate hit 6%, spurring the number of people signing contracts to buy a home with a mortgage to skyrocket. According to the National Association of Realtors, sales of homes awaiting finalization were unexpectedly strong 8% compared to December in January.

However, in recent weeks, that number has been declining. Mortgage rates have risen 100 basis points since the beginning of February. For someone buying a $400,000 home with a 30-year fixed loan at a 20% discount of the contract value, the monthly payment, including principal and interest, is now about $230 more per person per month compared to a month ago. Compared to a year ago when interest rates were in the 4% range, the monthly payment is now about 50% higher.

As a result, homebuyer mortgage applications have fallen over the past month, and last week hit a 28-year low, according to the Mortgage Bankers Association. At the start of this year, with mortgage rates slightly lower, it looked like the housing market was starting to recover. But that recovery has now stalled, and rising interest rates play a part in the current picture.

While the interest rate trend now looks to be moving higher again, it is very likely to reverse in the long term. Experts believe that the Federal Reserve will likely increase interest rates to curb inflation. However, there is also optimism that as the economy continues to recover from the pandemic, the interest rate may decrease again.

Nevertheless, the current situation is challenging for potential homebuyers who may struggle to afford monthly payments on their desired properties. It is important for buyers to remain informed and seek advice from experts before making any financial decisions.

In conclusion, rising mortgage rates are adding pressure to an already challenging housing market. While it is likely to reverse in the long term, homebuyers should be cautious and seek guidance before making any significant purchases.