A sign advertising mortgage services at a Bank of America branch in Manhattan Beach, California.
Patrick T Fallon | Bloomberg | Getty Images
According to Mortgage News Daily, the average interest rate on the popular 30-year fixed-rate mortgage was 7.22% as of Thursday. This is the highest value since early November.
Mortgage rates are loosely based on yield 10-year Treasurywhich jumped after a much stronger than expected jobs report from ADP.
Interest rates had already started to rise last week after Federal Reserve Chair Jerome Powell signaled the central bank could hike rates further after a pause in June.
Speaking to Congress shortly after the Fed’s June meeting, Powell said the central bank had “a long way to go” to bring inflation back to the 2 percent target. The next interest rate decision will be made on July 26.
The 30-year fixed-rate mortgage rate has risen 31 basis points in the past week alone. For a homebuyer taking out a $400,000 mortgage, the monthly principal and interest payment went from $2,637 to $2,720 in just one week.
For sellers, higher mortgage rates have led to what is known as the “golden handcuff effect”. The vast majority of homeowners today have mortgages with interest rates below 4% or even below 3% as interest rates hit record lows in the first year of the Covid pandemic. Now they don’t want to move and have to give up the low interest rate to shop at a higher interest rate.
“Recent data suggests that nearly 82% of homebuyers said they are committed to their existing low-rate mortgage, while about one in seven homeowners with no plan to sell cited the current low interest rate as a reason for holding off,” said Jiayi Xu, an economist at Realtor.com, in a press release.
Because of this, there is currently a critical shortage of homes for sale, with year-to-date new listings down 20% from last year’s pace.
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