Mortgage Rates are on the rise – What’s going on?

Many expected the mortgage rates to slowly drop this year as the economy is doing good and steady and there is no Fed rate increase. But things are happening in opposite direction as of Feb 8th, 2024.

  • Mortgage rates have surged over 7%, with the 10-year bond yield jumping back over 4%. This increase is 40 basis points higher than a month ago and 100 basis points higher than a year ago, potentially impacting buyer momentum.
  • Inventory levels are falling each week, a common trend for February, but inventory is 8.8% higher than last year. There are currently 497,000 single family homes unsold across the US, indicating a slight increase in sellers compared to the previous year.
  • Home prices continue to rise despite high mortgage rates, with the median price of single family homes in the US just under $425,000. Prices are a few percent higher than last year at this time, suggesting strong buyer demand and a market that could hit new all-time highs by May.

What’s going on?

Important reason is that US Job market outperformed expectations in Jan 2024 with surging job numbers. That made Fed Reserve to act conservatively and not to cut rates and make any drastic move till May/Jun. Because of that decision and bond markets going high, interest rates have gone up to 7%. See the image below.

  • The U.S. job market outperformed expectations in January 2024, with a significant surge in job growth and unemployment remaining low. Employers added approximately 353,000 workers, marking the largest one-month gain in a year and nearly double the rate economists forecasted.
  • Job gains were widespread across major industries, with notable expansions in Education and Health Services, Professional and Business Services, and Trade, Transportation, and Utilities. This broad-based growth indicates a resilient and expanding job market, despite high interest rates.
  • The unemployment rate held steady at 3.7% for the third consecutive month, maintaining a level below 4% for two years—the first occurrence since the late 1960s. Average hourly earnings rose by $0.19 from December to January, highlighting ongoing wage growth that surpasses rising prices.

What does it mean now?

Many are still expecting to have the Fed rates cut in the month or so to help the real estate market but we cannot be sure. If no cuts in the rates, that would keep the interest rates possibly on the higher side depending on the bond movement which is major player. Only mortgage rates going done will have major impact in the housing market in many markets.

Let’s hope for better rates to help consumers to buy more affordable homes!!

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