Mortgage Rates Tick Up (A Tad): Freddie Mac

Mortgage rates headed a bit higher this week, ending a four-week stretch during which rates dropped by almost half a percentage point. Still, it’s unclear whether the hike will kick off a continuing rise in rates. And despite this week’s gain, financing a home remains far more affordable than it was in the last half of 2022.

The 30-year fixed rate loan is averaging 6.12% for the week ending February 9, according to Freddie Mac, a week-over-week increase of just 0.03 percentage points. The average rate on a 15-year fixed-rate loan moved higher as well, and is now averaging 5.25%.

“The 30-year fixed rate continues to hover close to six percent, and interested homebuyers are easing their way back to the market just in time for the spring home-buying season,” said Sam Khater, Freddie Mac’s chief economist, in a press release.

The signs are growing that many potential homebuyers have already recovered from the shock of last year’s seemingly meteoric increase in rates, say analysts. Instead, buyers are coming to grips with the ‘new normal’ of mortgage rates hovering between 6% and 6.5%, said Lisa Sturtevant, chief economist at listing site Bright MLS, in a statement.

Buying activity picked up in January when rates average 6.17% for the month, as homes sales ticked higher and buyers expressed more interest in home tours. Many experts see the trend continuing into the spring as long as rates don’t jump significantly higher. (The consensus among analysts is that they won’t, and will instead likely fluctuate up and down in the low-6% range.)

“The housing market appears to have bottomed,” said Sturtevant. “If rates continue to be in this range, we should expect strong market demand.”

The good and the bad of a positive jobs market

Last week’s much-better-than-expected jobs report was good news for the overall economy. Yet the surge in jobs may have helped inspire this week’s interest-rate hike, which thwarted the hopes of potential homebuyers that mortgage rates would fall below 6% for the first time since last September.

On Friday, February 3, the Bureau of Labor Statistics reported the addition of 517,000 jobs in January, smashing analysts’ expectations of 187,000 new jobs. It was the largest employment gain since last July and helped lower the unemployment rate to 3.4%, the lowest since May of 1969.

The report highlighted the resiliency of the economy despite the aggressive monetary policy implemented by the Federal Reserve to combat inflation.

Increases in the federal funds rate are the primary tool the Fed uses to bring inflation under control because it increases the cost of borrowing for all kinds of credit products. By making it more expensive to borrow, the central bank hopes to slow demand and weaken employment, driving the cost of goods and services lower.

The surprisingly good employment news underlined the idea that the Fed may need to implement more increases in the federal fund rate (or the interest rate banks charge each other for overnight loans). So far the Fed has increased the short-term interest from near zero to a top range of 4.75% in less than a year.

Market observers were anticipating that the Fed would implement another 0.25 percentage point increase in the federal funds rate at the next Federal Open Market Committee meeting in March and then pause rate hikes. And that, say some analysts, might have been the prelude to a series of rate cuts by the Fed later in the year.

Now, with indications that the economy may not be slowing fast enough, the hopes that rate hikes will stall, and rates even decline, have faded. Some observers now worry that the central bank will increase rates even more than anticipated and keep them high for longer in order to achieve its goal of bringing inflation down to its target range of 2%. (That said, the betting money seems to be more on a series of small fluctuations of interest rates, in the low-6% range, in the months ahead than on any steady and significant climb in borrowing costs.)

For those worried about interest rates, another rate change fueled anxiety in the wake of the new jobs numbers. In the days that followed the report, yields on the 10-year Treasury note shot above 3.6% for the first time in almost a month as the markets reacted to the news. Mortgage rates tend to move in unison with Treasury yields — when yields rise, so do interest rates.

As the tug-of-war between positive economic news and fears of a recession plays out, borrowers should expect continued volatility over the next few months, said George Ratiu, manager of economic research at Realtor.com, in a statement. That means rates may have bottomed out for now.

“Mortgage rates are likely to continue to move up and down in a narrow range over the next few weeks,” Ratiu added.

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