In recent news, the average rate on the 30-year fixed mortgage has reached its highest point since early November, hitting 7.22%. This increase in mortgage rates follows the rise in the yield on the 10-year Treasury, which was triggered by a stronger-than-expected employment report from ADP. Last week, rates had already started to rise after Federal Reserve Chairman Jerome Powell hinted at the possibility of further interest rate hikes.
This recent surge in mortgage rates has led to a "golden handcuff effect" for sellers. Many homeowners currently have mortgages with interest rates below 4% or even below 3%, which were achieved during the record-low rates of the Covid pandemic. As a result, they are hesitant to sell their homes and give up their low rates to buy at higher rates.
According to economist Jiayi Xu, nearly 82% of home shoppers feel locked-in by their existing low-rate mortgages, while around 1 in 7 homeowners without a selling plan attribute their decision to the current low rates. Consequently, there is now a critical shortage of homes for sale, with new listings this year falling 20% behind last year's pace.
For homebuyers, the rise in mortgage rates means an increase in monthly payments. In just one week, the monthly payment of principal and interest for a $400,000 mortgage has risen from $2,637 to $2,720.
It is important to note that the next interest rate decision is scheduled for July 26, and the Federal Reserve aims to bring inflation back to its 2% goal. However, the recent increase in mortgage rates may have implications for the housing market, as sellers are reluctant to give up their low-rate mortgages and new listings remain scarce.
Overall, the rise in mortgage rates is a reflection of the movement in the yield on the 10-year Treasury and signals from the Federal Reserve. This has led to a shortage of homes for sale and an increase in monthly payments for homebuyers. The impact of these developments on the housing market remains to be seen.