By Diana Olick -
CNBC
The average interest rate on the popular 30-year fixed mortgage topped 7% on April 1, according to the analytics website Mortgage News Daily, and has continued to climb. It is now around 7.5%, which is its highest level since mid-November last year.
Last October, interest rates reached the highest figure in several decades, which put a brake on home sales. Home builders were prepared to lower interest rates for their customers and therefore achieved better results than sellers of existing homes.
Interest rates fell in mid-January to around 6% and remained that way until February,
which caused an increase in home sales
. But then they started to rise again.
“In mid-February, a spike in inflation readjusted expectations, and put mortgage rates back on an upward trend. The latest data and comments from Fed Chairman [Jerome] Powell have only underscored concerns about inflation,” said Danielle Hale, chief economist at Realtor.com. “Sales data in the coming months are likely to reflect the impact of now higher mortgage rates.”
However, even with the higher interest rates, applications for mortgages to buy a home increased 5% last week compared to the previous week, according to the Mortgage Bankers Association's (MBA) seasonally adjusted index. Demand remained 10% lower than the same week a year ago, even with interest rates now 70 basis points higher than a year ago.
“Despite these higher interest rates, [purchase] applications increased, possibly because some borrowers decided to act in case interest rates continued to rise,” said Joel Kan, chief economist at the MBA.
However, this may be short-lived as affordability weakens further. Although there is now more supply on the market than a year ago, it is still at a historically very low level. This has caused homes to sell faster as competition increases. Anyone expecting interest rates to drop significantly is going to be waiting a while.
“The latest economic data shows that the economy and job market
remain strong
, which will likely keep mortgage rates at these elevated levels for the foreseeable future,” said Bob Broeksmit, president and CEO of the MBA.