Mortgage rates ticked higher again Tuesday, after briefly sliding nearly a half-point in the aftermath of the Silicon Valley Bank and New York Signature Bank failures.
The average rate on the 30-year fixed mortgage increased to 6.75% on Tuesday, according to the latest Mortgage News Daily quote, up from 6.57% on Monday. Rates had fallen nearly a half-point from last week’s peak of 7.05% Wednesday, but resumed their upward trend on the heels of a report on Tuesday showing inflation remains stubbornly high.
The sudden dip in rates gave rate-sensitive buyers little time to react and truly benefit from the gain in purchasing power, which Keith Gumbinger, vice president of HSH.com, had earlier anticipated could occur in such a highly volatile market.
“Consumers that aren't in the market already or who aren't highly prepared to act can't easily take advantage of a sharp decline in rates,” Gumbinger told Yahoo Finance on Monday. “To be most beneficial, rates need to decline and hold there for a time so potential homebuyers and homeowners have the opportunity to react.”
Rates had been tracking a drop in the 10-year Treasury yield, which had plunged nearly 30 basis points since Wednesday’s close following SVB’s shut down. The yield, though, recovered slightly on Tuesday as some investors renewed bets that the Federal Reserve would not pause its interest rate hikes next week following the new inflation data.
The Fed had previously hinted on a 25-basis-point rate hike, with a target rate of 4.5% to 4.75%, the Fed’s February minutes showed. A few members, though, debated whether the central bank should take an even more hawkish approach, citing a 50-basis-point increase, given lingering high inflation.
With the recent bank failures overshadowing recent economic data, both economists and housing experts find it hard to tell how this will impact mortgage rates in the near term.
“Things are changing pretty quickly at the moment, and unsettled markets make it hard to know exactly where rates are at the moment," Gumbinger said. "Or perhaps more important, how long they'll hold there."
Mortgage rate hikes squeeze affordability
As mortgage rates trend higher, would-be homebuyers are seeing their purchasing power fade.
When rates slid to 6.57% on Monday, some buyers had gained back at least 5% of their purchasing power, Jeff Reynolds, broker at Compass and founder of UrbanCondoSpaces.com, said.
“For every percentage point decline in mortgage rates, you’ll gain 10% in buying power,” Reynolds told Yahoo Finance. “A half-point drop, that’s a 5% gain in purchase power or a pretty significant payment difference when you compare 6.57% rate to a 7% rate.”
But the break in rates this week so far appears short-lived and somewhat insignificant when comparing rates from a year ago.
For instance, the buyer of a median-priced home with a 6.65% rate – lower than Tuesday’s rate – would be facing a $2,132 monthly payment, according to Realtor.com. That’s 49% higher than last year.
“Mortgage rates are really high right now,” Daryl Fairweather, chief economist at Redfin, told Yahoo Finance. “It’s a really hard time in the market. Overall affordability is worse, and it just keeps getting worse each year. This year, it’s worse because of high mortgage rates.”
Gabriella is a personal finance reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.
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