Mortgage Rates Surge as Inflation Lingers

Mortgage rates jumped higher for the second week in a row as investors worry sticky inflation will cause more hawkish policy decisions from the Federal Reserve. The average 30-year fixed mortgage rate rose to 6.73%, from 6.55% the previous week. And the fixed rate on a 15-year mortgage spiked to 6.02%, from 5.75% a week ago.

Here are the current mortgage rates, without discount points unless otherwise noted, as of Feb. 16:

30-year fixed: 6.73% (up from 6.55% a week ago).

20-year fixed: 6.77% (up from 6.62% a week ago).

15-year fixed: 6.02% (up from 5.75% a week ago).

10-year fixed: 5.97% (up from 5.77% a week ago).

5/1 ARM: 5.43% (up from 5.38% a week ago).

7/1 ARM: 5.7% (down from 5.81% a week ago).

10/1 ARM: 5.9% (up from 5.87% a week ago).

30-year jumbo loans: 6.78% (up from 6.59% a week ago).

30-year FHA loans: 5.98% with 0.06 point (up from 5.75% a week ago).

VA purchase loans: 6.08% with 0.05 point (up from 5.86% a week ago).

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“Mortgage rates moved up for the second consecutive week. The economy is showing signs of resilience, mainly due to consumer spending, and rates are increasing. Overall housing costs are also increasing and therefore impacting inflation, which continues to persist.”

Sam Khater, Freddie Mac’s chief economist, in a Feb. 16 statement

Indeed, January’s consumer price index report showed that the annual inflation rate cooled slightly from 6.5% to 6.4%, which is a minimal slowdown. However, from a monthly perspective, consumer prices rose by 0.5% between December and January. While this certainly isn’t an outright reversal of the downward inflation trend, it does show that inflation is a bit sticker than the Fed would like.

The Fed has already signaled that it will continue hiking rates, but at a less aggressive pace than it did in 2022 due to progress on inflation. The next few meetings are expected to raise the rate by 25 basis points, compared with last year’s 75-point hikes.

“At the same time, many companies continue to expect the economy to enter a recession as a result of the Fed’s rate hikes, even in the face of data pointing to continued resilience,” says George Ratiu, manager of economic research.

To gauge how companies are feeling, all you need to do is look at the highly publicized tech layoffs mentioned in last week’s column. And as more workers are laid off, it could turn recession expectations “into a self-fulfilling prophecy,” Ratiu says.

“People who are laid off pull back on spending, and even those who are still employed may begin to do the same due to worries about losing their job, thus potentially sending consumer spending into a downward spiral,” says Ratiu.

Still, these layoffs come at a time when the unemployment rate is at a 53-year low. Most signals point to an otherwise healthy economy, but it certainly doesn’t seem that way for the thousands of demoralized workers who have been laid off due to a pessimistic corporate outlook.

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

Indicator of the Week: All-Cash Buyers Trigger an Affordability Paradox

Home price appreciation has slowed significantly since peaking at a 20% annual pace in April 2022. But even as mortgage rates have doubled from their record lows in 2021 and early 2022, home prices in many regional markets are still gaining steam at a breakneck pace, as seen in an interactive map from the New York Fed.

Some markets that saw the most dramatic price growth over the past few years — such as Seattle, Salt Lake City and Reno, Nevada — are now experiencing concentrated price declines. And yet some resilient markets in the South, including parts of Florida, North Carolina and Georgia, continue clocking double-digit price gains despite affordability challenges that have pushed many would-be homebuyers out of the market.

There could be an explanation for this mystery: Cash-flush buyers who flock from pricier cities to more affordable Southern markets. Roughly a third of homebuyers in the third quarter of 2022 paid in all cash, according to a new report from the real estate brokerage Redfin, up from about 20% at the start of the pandemic.

It’s not outlandish to think that a homeowner who’s sitting on $300,000 worth of equity in California could sell a home and afford a new one in suburban Georgia with the cash from the sale. It’s a savvy privilege afforded to the fortunate few who have enough money to buy a home outright and avoid the crushing weight of higher mortgage rates.

But sustained home price appreciation in today’s affordable markets creates a paradox for tomorrow’s homebuyers. Cash buyers, unaffected by fluctuating mortgage rates, can afford to keep up with rising home prices. Especially in more competitive markets where inventory remains low, cash buyers may be keeping prices elevated. As a result, the regions that were once reasonably priced to their lifelong residents are becoming too expensive for those who need a mortgage to buy a home.

The rise in remote work has exacerbated this problem, as local buyers (and their local wages) must also compete with teleworking transplants who bring their larger salaries with them wherever they move. A recent research paper from the San Francisco Fed suggests that “the shift to remote work may account for more than half of overall house price increases.”

There’s one silver lining to end this week’s column on a positive note. Homebuilder confidence just saw the largest monthly increase in 10 years, according to the National Association of Home Builders, led by optimism on the market for single-family homes. Builders seem to acknowledge that there’s still strong demand for housing even in the face of higher mortgage rates, which could drive more home construction that would boost inventory for buyers.

[Calculate: Use Our Free Mortgage Calculator to Estimate Your Monthly Payments.]

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