Mortgage rates have climbed five weeks in a row and are now at their highest levels since the week before Thanksgiving.
The average rate on the 30-year fixed-rate mortgage rose to 7.32% in the week ending May 2, according to rates provided to NerdWallet by Zillow. It was an increase of nine basis points over the previous week. (A basis point is one one-hundredth of a percentage point.) It marked the highest level since mid-November.
Rates rise as inflation plateaus
The 30-year mortgage has risen 63 basis points in five weeks. That’s unusual. When mortgage rates go up, they usually climb unhurriedly, like they’re taking the stairs. But they hopped an elevator a little more than a month ago. Inflation is the culprit.
The core consumer price index stood at 5.6% year-over-year in March 2023. Six months later, core inflation had slowed to 4.1%. It looked like inflation was steadily moving toward the Federal Reserve‘s goal of 2% after the Fed had raised short-term interest rates 11 times in a year and a half.
But since last fall, progress on inflation has stalled. From October to March (the last inflation report available), core inflation dropped from 4% to 3.8%.
No Fed rate cuts for a while
Even the Fed expressed frustration about inflation’s persistence. “In recent months, there has been a lack of further progress toward the Committee’s 2 percent inflation objective,” the central bank said in a statement May 1 at the conclusion of its monetary policy meeting. That might seem like a mild-mannered assertion, but in the buttoned-up world of the Fed, it’s the equivalent of banging one’s head against the desk.
At a news conference, Fed Chair Jerome Powell was asked repeatedly if the central bank will be compelled to raise short-term interest rates again to restrain inflation. He said a rate hike is unlikely. But he said he’s not in a hurry to cut the federal funds rate, either. “We want to be confident that inflation is moving … sustainably down to 2%,” he said.
The Fed doesn’t set mortgage rates — financial markets do — but the central bank exerts a strong influence. This outlook wasn’t news to financial markets. Investors know that inflation is lingering. Markets concluded more than a month ago that the Fed wouldn’t cut rates in the near future. That’s when mortgage rates embarked on this multiweek rise.
Transactions rise along with rates
Home buyers and sellers might be growing accustomed to these interest rates, prompting them to get on with their lives by making and accepting offers for real estate.
About 93,000 homeowners listed their homes for sale last week, according to Mike Simonsen, president of Altos Research, a real estate analytics firm. “That’s much more than in any week in the entire last year,” he said in his weekly YouTube commentary. He added that 76,000 offers were accepted last week, “more than any week in 2023.
Increases in listings and sales reflect multiple motivations: Some sellers and buyers may have wanted to act before mortgage rates climb even higher, while others might have given up on the prospect of lower rates anytime soon, prompting them to take action. It’s best to avoid timing the market and instead to buy or sell a home based on one’s needs. The bottom line is that houses continue to change hands, even with mortgage rates above 7%.
