Mortgage rates continue to climb in February

Mortgage rates climbed further above 7% this week, complicating the housing market with mixed signals on where home affordability will head next.

The average rate for a 30-year fixed loan reached 7.16% on Thursday and has remained over the 7% threshold every day over the past seven days, according to Mortgage News Daily tracking. The latest average is the highest in two months, matching the highest level since late November.

A separate index tracking the weekly average on a 30-year loan showed a similar story — the weekly average increased 12 basis points to 6.90% from 6.77% a week prior, according to Freddie Mac’s latest release.

Read more: Mortgage rates hover around 7% — is this a good time to buy a house?

So far in 2024, housing market activity remains slow but is expected to accelerate when rates drop. However, resilient economic data — strong labor market and consumer spending — will likely delay the rate cut that many were expecting earlier in the year. That would have a dampening effect on the normally busy spring homebuying season.

“The economy is creating jobs, but this mortgage rate is really hitting affordability limits for many households,” Lawrence Yun, chief economist at the National Association of Realtors (NAR), said Thursday. “Certainly, they cannot get a mortgage outside of their budget. So it’s not good news.”

Demand wanes as high rate stays

Rising mortgage rates again showed up in the level of mortgage activity this week. The volume of mortgage applications decreased more than 10% on a weekly basis, according to Mortgage Bankers Association data. Refinancing applications declined 11%.

Expensive borrowing costs and home prices have curbed buyer demand this season. Redfin’s Homebuyer Demand Index — measured by requests for home tours and other buying services — retreated 18% in February. Chen Zhao, Redfin’s economist research lead, also cited inflation as a culprit for the waning interest.

Story continues

January’s Consumer Price Index (CPI) increased 0.3% over December and 3.1% over the last year; both measurements were higher than economists’ expectations of 0.2% month over month and 2.9% annual increase.

That “…hotter-than-expected inflation report confirms that the Fed is unlikely to cut interest rates next month, which means mortgage rates will stay near 7% for now,” Zhao said.

A separate tracking of homebuyer intentions also showed a decline in buying plans. The share of survey participants responding they have “plans to buy a new home within six months” has been dropping over the last two months, according to Apollo Global Management’s US Housing Outlook report published in February 2024. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)

“Long-term housing demand is determined by jobs and we know we are adding jobs each month,” Yun said. “But the timing of the purchase is determined by mortgage rate and inventory availability. So this recent increase in mortgage rate(s) will definitely negate any of the long-term housing demand potential from job creation.”

Expensive borrowing costs and home prices have curbed buyer demand this season. (Mike Kemp/In Pictures via Getty Images)

Expensive borrowing costs and home prices have curbed buyer demand this season. (photo by Mike Kemp/In Pictures via Getty Images) (Mike Kemp via Getty Images)

First time buyers holding on

Elevated home prices and unwavering interest rates have been hurting prospective home buyers’ budgets. Monthly principal and interest mortgage payments on median-priced single-family homes have nearly doubled to $2,075 in 2023 from $1,200 in 2021, the National Association of Realtor (NAR)’s affordability index reported.

Homeowners have also had to devote a higher share of their income to mortgage payments during 2023. The share of income spent on housing payments averaged 25.5% in 2023, reaching as high as 27.4% in October.

“Potential homebuyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market,” Mike Fratantoni, MBA VP and chief economist, said.

The number of first-time homebuyers has dropped in today’s harsh buying environment, with the share of new buyers dipping to 28% in January, down from 29% in December, and 31% in January 2023, the National Association of Realtors reported.

“We don’t want to see [the share of first-time buyers] under 30%,” Yun said, “Few of the first time buyers have cash, so they are competing with cash buyers and will be at a disadvantage.”

Rebecca Chen is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).

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