Mortgage Rates Hit 7% Threshold, Worsening Housing Affordability Crisis

Mortgage rates in the United States have soared past the 7% mark, reaching a new high and further exacerbating the housing affordability crisis. According to data from Freddie Mac, the average 30-year fixed-rate mortgage now stands at 7.10%, up from 6.88% the previous week and significantly higher than the 6.39% average from a year ago.

The spike in mortgage rates is attributed to the expectations that the Federal Reserve will not be cutting interest rates anytime soon. While the Fed does not directly control mortgage rates, its actions influence them, and the current hot inflation readings have compelled the Fed to hold off on rate cuts.

As a result, potential homebuyers are faced with a dilemma of whether to make a purchase now before rates climb even higher or wait in the hopes of a future decrease. The surge in rates has also had a notable impact on the housing market, with US home sales declining sharply in March.

The rise in mortgage rates is closely tied to the benchmark 10-year US Treasury yield, which has reached its highest level since November at 4.637%. If inflation continues to stagnate or worsen, mortgage rates could continue to climb, further straining the housing market.

In addition to high mortgage rates, prospective buyers are also contending with elevated home prices nationwide. The median price of an existing home hit a record high of $393,500 last month, marking a 4.8% increase from the previous year.

Despite the challenges in the housing market, Americans are benefiting from a robust job market. However, a lack of inventory remains a persistent issue, with housing supply not keeping pace with demand, further impacting affordability.

The uncertainty surrounding the historic NAR settlement announced in March adds another layer of complexity to the housing market. The settlement, which is expected to change how homebuyers and sellers pay their real estate agents, has already begun to alter the behavior of buyers and sellers ahead of its implementation in July.

Overall, the combination of soaring mortgage rates, high home prices, and limited inventory is creating a challenging environment for both buyers and sellers in the housing market. The coming months will be critical in determining how these factors will shape the future of real estate in the US.