The Blubber

The average long-term mortgage rate in the United States climbed to its highest level in five weeks, presenting a challenge for potential homebuyers during the typically busy season for home sales.

According to mortgage buyer Freddie Mac, the average rate on a 30-year mortgage increased to 6.88% from 6.82% last week. This is up from 6.27% a year ago.

When mortgage rates rise, borrowers may face hundreds of dollars in additional monthly costs, limiting their purchasing power. This comes at a time when the U.S. housing market is constrained by a limited supply of homes for sale and rising prices.

In recent weeks, rates have been trending upwards, driven by stronger-than-expected reports on employment and inflation. This has led to uncertainty among bond investors about the Federal Reserve's timeline for lowering its benchmark interest rate. The Fed has indicated that it plans to cut its short-term rate three times this year once it observes more evidence of inflation cooling down.

On Wednesday, Treasury yields surged in response to a report showing higher-than-expected inflation last month. The March consumer prices report marked the third consecutive month of inflation readings exceeding the Fed's 2% target. However, a report on Thursday showed that inflation at the wholesale level was slightly lower than economists had anticipated.

The 10-year Treasury yield, which serves as a benchmark for loan pricing, rose to 4.57% on Thursday afternoon, its highest level since November. Mortgage rates are influenced by various factors, including the bond market's reaction to the Fed's interest rate policy and movements in the 10-year Treasury yield.

Despite reaching a 23-year high of 7.79% in October, the average rate on a 30-year mortgage has remained below 7% since early December. However, it has not fallen below the 6.6% mark seen in mid-January.

Mortgage rates are expected to continue fluctuating between 6.6% and 7% until there is significant progress towards the Fed's inflation target, according to Hannah Jones, senior economic research analyst at Realtor.com.

"Eager buyers and sellers are hoping to see more favorable housing conditions as the spring selling season kicks off," said Jones. "However, mortgage rates have offered little relief as economic data, as measured by both inflation and employment, remains strong."

The U.S. housing market has been recovering from a two-year sales slump caused by a sharp increase in mortgage rates and a shortage of homes for sale. The decline in mortgage rates since their peak last fall has contributed to a pickup in sales in the first two months of this year.

Sales of previously owned U.S. homes rose in February to the strongest pace in a year, following an increase in January.

Despite the recent increase in rates, the average rate on a 30-year mortgage remains significantly higher than it was two years ago at 5%. This gap has limited the number of homeowners willing to sell their homes, as many are reluctant to give up their fixed-rate mortgages below 3% or 4%.

Many economists anticipate that mortgage rates will ease slightly later this year, although most forecasts suggest that the average rate on a 30-year home loan will remain above 6%.

Refinancing a home loan also became more expensive this week. Borrowing costs on 15-year fixed-rate mortgages, commonly used for refinancing longer-term mortgages, increased this week, pushing the average rate to 6.16% from 6.06% last week. A year ago, it averaged 5.54%, according to Freddie Mac.