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Mortgage Rates Surpass 7% Mark, Impacting Housing Market

Mortgage Rates Surpass 7% Mark, Impacting Housing Market

In the ongoing saga of rising mortgage rates, the 30-year fixed-rate mortgage climbed to 7.17% this week, marking a continued ascent from the previous week’s 7.1%, as reported by Freddie Mac. This surge follows last week’s breach of the 7% threshold, triggered by a government report revealing persistent inflationary pressures.

Further exacerbating the situation, daily rate fluctuations depicted an even steeper trajectory, with the 30-year fixed loan hitting 7.52% on Thursday, the highest level since November 2023, according to Mortgage News Daily. The implications of these climbing rates are profound, especially for prospective buyers navigating the spring housing market, prompting some to reassess their purchasing strategies and placing others on the sidelines.

The Mortgage Bankers Association’s (MBA) latest weekly survey revealed a 1% decline in applications for home purchases during the week ending April 19, with overall applications plummeting by 15% compared to the same period last year. In response to the rising rates, buyers are turning to government-backed loans or adjustable-rate mortgages (ARMs) in search of relief, as indicated by an approximately 8% increase in ARM applications and a modest uptick in FHA applications.

However, the surge in mortgage rates isn’t solely responsible for the market slowdown; the persistently limited inventory of homes also plays a significant role. With demand continuing to outstrip supply, home prices remain resistant to downward pressure, contributing to what economists term the “lock-in effect,” wherein homeowners are hesitant to sell and buy new homes at higher prices and interest rates.

Despite these challenges, sales of newly built homes in March surpassed expectations, registering the most significant increase since December 2022. The seasonally adjusted annual rate for sales of new, single-family homes rose nearly 9% to 693,000, providing a welcome buffer amid dwindling inventory in the existing home market.

Looking ahead, experts anticipate a potential moderation in the pace of new home sales, yet the surge in inventory, coupled with resilient buyer demand, offers a glimmer of hope amid the current housing market turbulence. As Freddie Mac’s chief economist, Sam Khater, notes, homebuyers are adjusting to the reality of higher rates, underscoring the market’s adaptability in the face of evolving financial conditions.

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