Interest rates have risen to their highest level in more than six months.
According to the Freddie Mac Primary Mortgage Market Survey, the 30-year fixed-rate mortgage averaged 3.05% for the seven days ended October 14. It rose six basis points from 2.99% the week before and 24 points from 2.81% a year ago. It's also the highest rate since hitting 3.13% on April 8th.
The recent growth should be a sign that inflation is picking up momentum and the Federal Reserve is starting to tighten monetary policy.
"The September job report was generally viewed as 'the benchmark' for the Federal Reserve to reduce bond purchases," said Paul Thomas, vice president of capital markets at Zillow, in a press release. "The September Open Market Committee minutes of the US Federal Reserve continue to point to a reduction from the end of the year, which is in line with current market expectations, which could drive interest rates higher at the beginning of the new year."
The central bank has argued that tapering bond purchases would be consistent with the economic recovery. Advances in Congressional negotiations on the debt ceiling, retail sales data and an index of inflation indicators released this week by the Bureau of Labor Statistics should dictate where interest rates go in the short term, Thomas continued. Additionally, according to the Urban Land Institute's Real Estate Economic Forecast, the 10-year treasury rate is expected to close at an average of 1.6% in 2021, up from 0.93% in 2020. The yield closed at 1.54 on October 13 %.
The 15-year fixed rate also rose to 2.3% weekly, up seven basis points from 2.23%. However, it was below the previous year's average of 2.35%. The 5-year Treasury-indexed floating rate rose three basis points to 2.55% from 2.52% the previous week, while falling below the prior-year average of 2.9%.
The expected rise in interest rates further depresses affordability as the real estate market continues to face extreme real estate increases in value.
"Historically, interest rates are still low, but many potential homebuyers remain on the sidelines due to high property price growth," said Freddie Mac chief economist Sam Khater.