Mortgage rates rose for the fourth consecutive week

Washington, DC (CNN) Mortgage rates rose for the fourth straight week, as inflation fears persisted.

The average 30-year mortgage rate was 6.65% in the week ended March 2, up from 6.5% in the previous week, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed interest rate was 3.76%.

Interest rates have been trending lower after hitting 7.08% in November, but are now rising again, up about half a percentage point in a month. The strong economic data continues to suggest that the Fed is not done with its battle to cool the US economy and is likely to continue raising the benchmark lending rate.

“As the year began, 30-year mortgages declined at a steady rate with expectations of lower economic growth, inflation and monetary policy easing,” said Sam Khater, chief economist at Freddie Mac. “However, due to sustained economic growth and continued inflation, mortgage rates have rebounded and gradually increased to around 7%.”

Khater said low prices in January brought buyers back into the market.

“Now that interest rates are going up, affordability is crippling and making it difficult for potential buyers to act, especially for repeat buyers with existing mortgages for less than half of current rates,” he said.

The average mortgage rate is based on the mortgage applications Freddie Mac receives from thousands of lenders across the country. The survey only includes borrowers who have given a 20% decrease and have excellent credit. Many buyers who offer less money up front or have less than ideal credit will pay more than the average price.

Inflation is expected to remain high for a longer period

The benchmark interest rate has continued to rise, building on the momentum from the past few weeks, with the 10-year Treasury note hitting 4% this week.

The Federal Reserve does not set the interest rates paid by mortgage borrowers directly, but its actions affect them. Mortgage rates tend to track the yield on the 10-year US Treasury note, which moves based on a mix of anticipation about Fed action, what the Fed is actually doing and investor reaction. When Treasury yields rise, so do mortgage rates; When mortgage rates go down they tend to follow.

“Investors expect inflation to remain elevated for longer, which requires the Federal Reserve to continue to increase its policy rate,” said George Ratiu, chief economist at Realtor.com. “The Fed has indicated that it sees its monetary tightening as having an impact on price growth, but with a strong labor market, wages are keeping consumer spending in check.”

Meanwhile, Ratiu said, consumers have taken on a record amount of debt, including mortgages, personal loans, auto and student loans.

“The personal savings rate has fallen significantly from the pandemic’s high level, as high prices have squeezed household budgets,” he said. “As interest rates rise, financial burdens are expected to increase, making consumer choices more difficult in the coming months.”

Mortgage applications go down as rates go up

The brief boost in mortgage activity and home buying ended in January as interest rates fell, with mortgage applications last week dropping to a 28-year low, according to the Mortgage Bankers Association.

“The recent jump in mortgage rates has led to a decline in purchase orders, with activity declining for three consecutive weeks,” said Bob Proxmiet, CEO of MBA. “After strong gains in buying activity beginning in 2023, rising rates, persistent inflationary pressures and economic volatility have stopped some potential homebuyers when entering the housing market.”

Ratiu said prices are trending higher and could reach 7% again in the next two months.

“For real estate markets, higher interest rates mean higher mortgage payments, deepening the affordability challenge as we move into the spring homebuying season.”