Rates Reach Highest Since November, Cooling Housing Market

The housing market is seeing pressure from rising interest rates.

According to the Mortgage Bankers Association, the average 30-year fixed mortgage rate increased 23 basis points from the previous week to 6.62 percent, the highest rate since November 2022. (MBA). This is causing a decline in mortgage applications when home purchases are typically rising.

“The increase caused the purchase applications index to drop 18 percent to its lowest level since 1995,” according to MBA vice president and deputy chief economist Joel Kan. “Typically, this time of year is when buying activity increases, but over the past two weeks, rates have risen dramatically as financial markets absorb news indicating inflation is decreasing at a slower rate than anticipated.”

The Federal Reserve increased its benchmark interest rate in 2022 with the intention of reducing inflation throughout the economy, particularly the overheated housing market. The economy has achieved some progress in this area.

An ‘open house’ flag is displayed outside a single-family home on September 22, 2022 in Los Angeles, California. (Photo by Allison Dinner/Getty Images)

The National Association of Realtors said on Tuesday that the median existing home price increased by 1.3% in January from the previous year, the smallest increase since 2012. The lowering inflation coincided with a 0.7% decline in existing home sales, the largest decline since 2010.

In a news statement, Lawrence Yun, chief economist of the National Association of Realtors, stated, “Home sales have reached their bottom.” Prices vary based on the affordability of a market, with more affordable regions enjoying growth and more expensive ones suffering reductions.

In recent months, mortgage rates moderated as the market anticipated the Federal Reserve to slow its rate hikes. Recent data reports indicating a surprisingly robust U.S. economy have dampened expectations for fewer rate hikes.

According to Fed officials, rate hikes aim to reduce inflation. Currently, however, the combination of increased interest rates and record-high property prices is discouraging prospective purchasers from entering the market.

“The rise in mortgage rates has pushed many homebuyers back into the sidelines, particularly first-time homebuyers who are most sensitive to affordability issues and the impact of increased rates,” Kan added.