Mortgage Rates Spike as Stubborn Inflation Persists

Inflation continued to surge at a four-decade high in June, per the newly released Consumer Price Index, despite the Federal Reserve’s efforts to rein in soaring prices through a series of aggressive rate hikes. On the heels of this news, mortgage rates bounced back up after dropping by half a percentage point earlier this month.

The average 30-year fixed mortgage rate rebounded to 5.51% for the week of July 14, according to Freddie Mac. Interest rates jumped this week for both fixed- and adjustable-rate mortgages, and they remain much higher than they were at this time last year. Here are the current mortgage rates:

30-year fixed: 5.51% with 0.8 point (up from 5.3% a week ago, up from 2.88% a year ago).

15-year fixed: 4.67% with 0.8 point (up from 4.45% a week ago, up from 2.22% a year ago).

5/1-year adjustable: 4.35% with 0.2 point (up from 4.19% a week ago, up from 2.47% a year ago).

[Compare: Mortgage and Refinance Rates in Your Area.]

“Mortgage rates are volatile as economic growth slows due to fiscal and monetary drags. With rates the highest in over a decade, home prices at escalated levels, and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans.”

— Sam Khater, chief economist at Freddie Mac, in a July 14 statement

Higher mortgage interest rates are widely expected to slow home price appreciation, but that hasn’t kicked in quite yet. Home prices grew by 19.4% annually in the second quarter of 2022, Fannie Mae reports, which remains at a near-record high. Doug Duncan, Fannie Mae’s chief economist, says in a news release that price growth remains strong due to low housing inventory — although he does expect appreciation will moderate in the future as rising rates put a damper on homebuying demand.

The housing inventory shortage is a complicated problem to solve, since it’s driven by longstanding underproduction. National housing production is lagging by 3.79 million units, according to a new study from Up for Growth, an advocacy group focusing on increasing housing supply and affordability.

Housing underproduction is a problem in 47 states and the District of Columbia, with 169 metro areas lacking sufficient housing. The crunch is felt the worst in California, with a lack of 978,000 houses that need to be built. It’s also prominent in other Western states, like Oregon, Washington, Utah and Colorado.

As the housing shortage continues to impact consumers nationwide, the federal government is stepping in to address the problem. Last month, the U.S. Department of Housing and Urban Development launched a new initiative, Our Way Home, to connect communities with the resources they need to produce and preserve affordable housing. The administration has been tasked with creating a plan to close the housing supply gap within the next five years.

[Read: Best Mortgage Lenders.]

Indicator of the Week: ‘Drive Till You Qualify’

Rising mortgage rates — paired with stubbornly high home prices — have ushered in an affordability crisis for this summer’s homebuyers. As pointed out in last week’s column, buyers today are forced to make a choice between locking in higher monthly mortgage payments or reducing their purchase budgets.

As borrowers are feeling the pinch of dwindling mortgage affordability, many are widening their search area to lower cost-of-living areas in an aptly named approach, “drive till you qualify.” Essentially, if you can’t find a reasonably priced home in the city where you live or work, you have to settle for moving to an outer suburb farther down the highway.

This isn’t necessarily a new phenomenon. For decades, homebuyers have flocked to cheaper suburbs when they couldn’t afford a home within city limits. But when you drive until you qualify, there’s an added expense: the commute. Although driving an hour into the nearest city isn’t unheard of, a long commute can be a financial drain at a time when gas prices have risen by about $1.50 per gallon year over year, according to AAA. Not to mention, you may have to sacrifice two hours of your valuable time each time you need to go to work.

However, there might be an alternative option for today’s homebuyers, says George Ratiu, manager of economic research at Realtor.com. He suggests in a recent report that buyers are going to find a more favorable housing market if they can wait a few months, “particularly as we move into fall and winter.”

“We’re seeing new listings hit the market in much larger numbers,” Ratiu says. “And to me, that’s really encouraging. Because that’s been the missing ingredient in the market of the last few years.”

Price relief may be on the way for those who can wait, though it’s difficult to tell where mortgage rates will be in the coming months. If rates remain elevated, it will continue to put upward pressure on new mortgage payments even if home prices cool down.

[Read: How to Get a Mortgage With No Down Payment. ]

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Mortgage Rates Spike as Stubborn Inflation Persists originally appeared on usnews.com

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