Mortgage Rates Rise, Ending Monthlong Downward Slide

This week, mortgage rates rose across the board for both fixed and adjustable rate home loans. The average rate of a 30-year fixed loan increased to 6.92%. This is the first increase in mortgage rates since early March. It ends a downward trend of a month that was improving affordability for homebuyers before the spring sales season.

As of April 13, here are the current mortgage interest rates without discount points, unless otherwise stated:

Purchase loans with VA: 6.16% plus 0.05 points (up from 5.96% one week ago).

The 30-year fixed rate mortgage will remain in the same range of 6%-7% for the next eight months due to the uncertainty surrounding the economy and the Fed's ability to control inflation without harming consumer spending.

• George Ratiu, chief economist at Keeping Current Matters

Rates are expected to continue falling in 2023. However, it is not likely that they will fall below 6% before the second half of this year. It's important to note that mortgage interest rates are likely to fall, but will not reach the historic low of 2.65% in January 2021. The pain of rising rates in the year 2022 has kept many buyers away. However, the consumer is now accustomed to this new reality and understands that rates will remain high.

Ratiu says that rates have been mostly above 5% for the past year, which makes today's rates more acceptable. It also lessens the initial shock of 2022.

Buyers are very sensitive to changes in mortgage rates. Mortgage rates dropped to their lowest level of the year in February, which led to a rebound in existing-home sales. Last week, mortgage demand increased as rates again fell, according to Mortgage Bankers Association.

Bob Broeksmit is the MBA's President and CEO. He says that a 8% increase in home buying applications was attributed to a drop in rates during the week prior. "The possibility of even lower interest rates in the months to come should lead an increase in demand, despite recent indications of a slower economy and tighter economic conditions."

In the spring and summer, as homeowners get ready to sell their homes, there is a seasonal increase in demand. The spring homebuying market is expected to remain relatively low compared to the last two years. However, mortgage rates will not keep buyers away forever.

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Indicator of The Week: Rent Stickiness

On April 12, the Bureau of Labor Statistics published its latest Consumer Price Index report, which showed that inflation increased but at a moderate pace of only 5% per year. This is down from a peak of 9.1% in June last year, and the lowest rate of inflation for nearly two years.

Prices have actually decreased in several categories, including gasoline (-17.4%), oil (-14.2%), and used cars (-11.2%). The Federal Reserve is pleased to hear that inflation has slowed down. They are also trying to limit price increases to the 2% target rate. The Fed could decide to stop its rate hikes in this year due to signs of stabilizing price levels. It is projected that the terminal federal funds rate will be between 5% and 5.25 percent.

Fed officials aren't yet claiming victory over inflation. The consumer continues to be the main driver of services demand, with discretionary expenditures on airline fares (17.7%), and food eaten away from home (8%). The inflation rate is also high in many categories of essential spending such as auto insurance (15%). car repairs (13.3%), electricity (10.2%), home food (8.4%) or shelter (8.2%).

Rent payments are a major part of the budget for most consumers, so rents that remain stubbornly high have a significant impact on inflation. Rents are still significantly higher than the average price of a home on an annual basis. However, monthly prices have begun to decline since March.

Lawrence Yun is the chief economist for the National Association of Realtors. "Although still up by an impressive 8.8% compared to a year earlier, the monthly gains were much smaller at 0.45%, compared to the previous 0.7% to 0.9%." Rent growth was bound to slow, given the robust apartment construction.

Rent inflation will continue to slow in the months ahead, and if that happens, the inflation rate overall will also drop. Meanwhile, Americans pay more for food, transportation, and shelter while homeowners face higher housing payments due to rising mortgage rates and sales prices.

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