Mortgage rates rose to the highest level in six months raising questions about higher borrowing costs crimping the pandemic era’s housing rally.
Q. What happened?
A. The average for a 30-year, fixed loan was 2.97%, up from 2.81% last week and the highest since August, Freddie Mac data showed Thursday. Rates have climbed from the record low of 2.65%, reached in early January.
Q. Do rates matter?
A. The pandemic housing boom was built on historically low mortgage rates. Now, vaccines are raising optimism about an economic recovery and Treasury yields are ticking higher.
A rapid jump in borrowing costs may dull the housing rally. The 2020 increase equals a 4% reduction in buying power for a house hunter using a 30-year loan. In the previous 12 months, buying power jumped 11%.
Q. How hot has housing been?
A. That cheap money helped prices in the six-county Southern California region to jump 13% to a $599,500 median, according to DQ News/CoreLogic. It’s the sixth consecutive month of double-digit price gains.
That appreciation didn’t slow house hunters who pushed sales up 13.5% over 2020’s start to 17,352 transactions — the biggest sales tally for a January in 14 years.
It’s just not a SoCal thing. Home prices are soaring across the nation, especially in suburbs where buyers are fighting over an increasingly scarce resource: listings.
“There’s not enough for sale,” said Greg McBride, chief financial analyst at Bankrate.com, which tracks mortgage rates. “Maybe that means downshifting from red hot to merely sizzling.”
Q. What’s pushing rates up?
A. Interest rates typical move opposite to economic health. Investors are increasingly optimistic that if life gets back to normal, jobs will return to the economy. At the same time, the yield on 10-year Treasuries, a benchmark for mortgages, reached its highest level in about a year this week.
The rise in rates is definitely bad news for the mortgage business, which had been booming like never before. The industry posted record profits in 2020, with a flood of Americans seeking loans to buy houses and looking to refinance debt.
With rates climbing, mortgage applications dipped to a nine-month low last week, while pending home sales in January fell to a six-month low.
“When combined with demand-fueled rising home prices and low inventory, these rising rates limit how competitive a potential homebuyer can be and how much house they are able to purchase,” Sam Khater, chief economist at Freddie Mac, said in a statement.
Bloomberg News and Southern California News Group’s Jonathan Lansner contributed to this report.
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