This week, mortgage rates in the United States surged to a new high in 10 weeks, and higher-than-expected inflation data raised doubts about whether the economy is entering a deflationary trend.
According to data from Freddie Mac, the 30-year fixed-rate mortgage rate rose from 6.64% last week to 6.77%, and the borrowing costs for 15-year fixed-rate mortgages also increased, pushing the average rate from 5.90% last week to 6.12%.
Meanwhile, the yield on 10-year Treasury bonds surged again, following the release of the Consumer Price Index (CPI) report earlier this week and the Producer Price Index (PPI) report on Friday, both of which exceeded expectations.
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With the rise in mortgage rates, borrowers will pay more interest each month, potentially slowing down demand from homebuyers and affecting homeowners who previously locked in low rates and are now looking to sell their homes. Over the past two years, due to rising mortgage rates and a shortage of housing supply, the US real estate market has been sluggish.
In 2023, existing home sales dropped to the lowest level in nearly 30 years, down nearly 19% year-on-year. According to Redfin data, the inventory of homes for sale in January fell by 8%, marking the largest drop in four months. Redfin attributed this to the January employment report exceeding expectations, exacerbating concerns about inflation and implying that the Federal Reserve may maintain high rates for a longer period.
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In the face of surging inflation, the Federal Reserve began rapid rate hikes in March 2022, raising the federal funds rate to the current range of 525-550 basis points, or 5.25%-5.50%. While officials have stated that they see inflation gradually returning to the central bank's 2% target, they have also warned that the battle to contain price pressures is far from over, and rates may need to remain high for a longer period.
Economic indicators suggest that the Federal Reserve is unlikely to cut rates soon. Sam Khater, Chief Economist at Freddie Mac, stated in a release that the economy has performed well so far this year, and rates may remain high for a longer period, potentially slowing down the spring homebuying season. Moreover, rising mortgage rates will add hundreds of dollars to borrowers' monthly costs, resulting in tens of thousands of dollars in extra interest over the entire 30-year loan term. According to Freddie Mac's data, mortgage applications for home purchases have declined compared to a year ago in more than half of the states in 2024.
In this scenario, it is important to closely monitor market dynamics and undertake appropriate risk management and planning. Especially for those planning to buy a home or already holding a mortgage, it is important to carefully evaluate current loan costs and future rate trends to make informed decisions. At the same time, governments and relevant authorities need to monitor the impact of real estate market and rate changes on the overall economy and take appropriate policy measures to stabilize the market and promote economic development.
