Historically low mortgage rates in the US fueled a real estate boom due to a coronavirus pandemic that could cool off with rising borrowing costs.
U.S. mortgage rates rose to their highest level in six months, with higher borrowing costs threatening to dampen the pandemic real estate rally.
The average for a 30-year fixed loan was 2.97%, down from 2.81% last week and its highest level since August, Freddie Mac data showed Thursday. Interest rates rose from a record low of 2.65% in early January.
The pandemic real estate boom was built on historically low mortgage rates. Now vaccines are fueling optimism about an economic recovery and government bond yields are ticking higher.
A rapid rise in borrowing costs threatens the rally. Property prices are skyrocketing across the country, especially in the suburbs where buyers are battling over an increasingly scarce resource: real estate.
“There’s not enough to sell,” said Greg McBride, senior financial analyst at Bankrate.com who tracks mortgage rates. “Maybe that means shifting down from scorching hot to just sizzling.”
Investors are increasingly optimistic that when life returns 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 around a year this week.
The rise in interest rates is bad news for the mortgage business, which has boomed like never before. The industry saw record profits in 2020 as a deluge of Americans sought loans to buy homes and refinance debt.
With interest rates rising, mortgage applications fell to a nine-month low last week, while pending home sales fell to a six-month low in January.
“Combined with soaring property prices and low inventory levels, these soaring prices limit a potential homebuer’s competitiveness and how much home they can buy,” said Sam Khater, Freddie Mac’s chief economist, in a statement.