Mortgage rates jump back over 7%.
After the January employment report surpassed expectations, mortgage rates experienced the most significant surge in over a year. The upward momentum continued following a monthly manufacturing report that also showed higher-than-expected figures.
The roller-coaster journey of mortgage rates, which briefly touched a 20-year high of 8% in October before sharply declining, is influenced by investor sentiment regarding the Federal Reserve's interest rate policies. Although mortgage rates don't directly mimic the Fed's movements, they loosely follow the yield on the 10-year Treasury, which is heavily influenced by the central bank's economic assessments.
The recent rapid increase in rates is attributed to the market's overly optimistic view of the Fed's rate cut outlook. The Fed, emphasizing economic data's role in shaping its decisions, saw unexpectedly unfavorable data in the Friday morning jobs report, contributing to the surge in rates.
As mortgage rates declined in the past two months, homebuyers showed renewed interest in the market, coinciding with a slight increase in the number of available homes. However, the overall housing inventory remains historically low, intensifying competition and sustaining elevated home prices.
Despite the positive impact of a robust job market on the upcoming spring buying season, higher household incomes are likely to limit further declines in mortgage rates. Michael Fratantoni, chief economist at the Mortgage Bankers Association, notes that while a strong job market is favorable for homebuying, it indicates that mortgage rates may not experience significant declines.
As the spring housing market approaches, mortgage rates become even more critical, given the persistent high prices of homes. The median price of existing homes sold in December 2023 reached $382,600, marking the sixth consecutive month of year-over-year price gains. Small rate fluctuations can significantly impact monthly payments and, consequently, affordability for potential buyers. The future trajectory of rates in 2024 is contingent on economic data and inflation trends. Positive economic data may keep rates above 7%, while lower-than-expected inflation could balance the outlook.
