A sign advertising home mortgage services at a Bank of America branch in Manhattan Beach, Calif.
Patrick T. Fallon | Bloomberg | Getty Images
The average rate on the popular 30-year fixed mortgage reached a new high of 7.22% on Thursday, as reported by Mortgage News Daily. This surge in mortgage rates is the highest since early November.
Mortgage rates tend to follow the yield on the 10-year Treasury, which experienced a sharp increase after a stronger-than-expected employment report from ADP.
Last week, rates had already started to rise following indications from Federal Reserve Chairman Jerome Powell that the central bank might continue raising interest rates after a pause in June.
In his remarks to Congress following the June Fed meeting, Powell emphasized the central bank’s commitment to achieving its inflation target of 2%. The next interest rate decision will be announced on July 26.
In just the past week, the 30-year fixed mortgage rate has increased by 31 basis points. For a homebuyer taking out a $400,000 mortgage, the monthly payment of principal and interest rose from $2,637 to $2,720 in just one week.
Higher mortgage rates have created a “golden handcuff effect” for sellers. The majority of homeowners today have mortgages with interest rates below 4% or even 3% due to historically low rates during the Covid pandemic. As a result, many homeowners are reluctant to sell and give up their low-rate mortgages to buy at higher rates.
“Recent data indicates that nearly 82% of home shoppers feel locked-in by their existing low-rate mortgage, while approximately 1 in 7 homeowners without a selling plan cite their current low rate as the reason for staying on the sidelines,” stated Jiayi Xu, an economist at Realtor.com.
Consequently, there is currently a critical shortage of homes for sale, with new listings this year lagging behind last year’s pace by 20%.
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