Potential home buyers walk past an open house sign in the front yard of a property for sale in Columbus, Ohio.
According to Mortgage News Daily, the average rate on the 30-year fixed mortgage was 3.7% Tuesday morning. That is the highest since April of 2020 and is 83 basis points higher than a year ago.
Financial markets are reacting to the Federal Reserve's monetary policy tightening and surging bond yields. Demand for mortgage-backed bonds affects mortgage rates. The Fed had been buying those bonds aggressively in order to keep rates low, but it is now pulling out of the market faster than expected.
Matthew Graham, COO of Mortgage News Daily, said that mortgage rates would be higher, but that they were compressing their margins to compete in a rising rate environment.
A year ago, when rates were much lower, lenders were losing a lot of refinance business. According to the most recent survey from the Mortgage Bankers Association, applications to refinance a home loan were down 50% from a year ago.
Rates are now becoming a bigger deterrent than they were because of the rapid rate spike. The refi share of the origination market should be taking a big hit in upcoming updates.
In 2020, mortgage rates set more than a dozen record lows, causing already strong homebuyer demand to surge even more. With the extra purchasing power afforded by low rates, buyers bid up prices on the low supply of homes for sale, and those prices are now up double digits from a year ago.
There isn't enough supply to cool the market, as both new and existing home prices are at record highs.
Potential buyers don't want to see rising rates in the spring housing market. Supply chain and labor issues are making it hard for buyers of new construction to close their contracts. Buyers can't lock in rates until they have a closing date.
The monthly payments for buyers of a median-priced existing home are $125 more than they would have been a few months ago. First-time buyers on the lower end may be priced out of the market.
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