Contractors are hard at work on the concrete slabs at the Cielo at Sand Creek housing development in Antioch, California. However, on Tuesday, the average rate on a 30-year fixed mortgage rose above 7%, marking the highest level since early March, according to Mortgage News Daily. There are several reasons behind this rise in rates, including uncertainty over the Federal Reserve’s next move, as the economy remains strong, and the ongoing debate about raising the debt ceiling, which could lead to a US default.
The previous week saw a decline in mortgage demand, with total mortgage application volume dropping by 4.6% compared to the previous week, according to the Mortgage Bankers Association. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances also rose to 6.69% for loans with a 20% down payment. That rate was 5.46% the same week last year.
Mortgage applications to purchase a home also fell by 4% for the week and were 30% lower than the same week a year ago. According to Joel Kan, the vice president and deputy chief economist at MBA, “we have yet to see sustained growth in purchase applications” due to volatile interest rates and limited inventory.
Additionally, applications for home loan refinancing decreased by 5% from the previous week, and were 44% lower than the same week one year ago – the lowest level in two months. While banks have been tightening lending standards due to recent bank failures, few borrowers are in a position to benefit from a refinance, given how much rates have risen in the past year.
Despite the uncertainty surrounding interest rates and the outcome of the debt ceiling debate, rates are not expected to drop significantly anytime soon. Matthew Graham, the COO at Mortgage News Daily, credits the “progressive improvement in bank sentiment, mixed but resilient economic data, and a Federal Reserve that has been steadfast in its reminders about their ‘higher for longer’ rate mantra” for the upward trend in rates.
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