Mortgage rates have risen this week as the Federal Reserve prepares to raise its main borrowing rate to combat baffling increases in inflation.
The average rate on a 30-year loan rose to 3.85% from 3.76% last week, mortgage buyer Freddie Mac reported Thursday. A year ago, the long-term rate was 3.05%.
The average rate on 15-year fixed-rate mortgages, popular among those refinancing their homes, climbed to 3.09% from 3.01% a week earlier. It was 2.38% a year ago.
Last week, Fed Chairman Jerome Powell said he supported a traditional quarter-point increase in the Federal Reserve’s benchmark short-term interest rate at the Fed’s meeting more later this month, rather than a larger increase suggested by some policymakers.
Powell opened the door for a bigger hike in case inflation, at its highest level in four decades, does not come down materially this year as the Fed expects.
The Labor Department reported Thursday that consumer inflation jumped 7.9% over the past year, the biggest rise since 1982 and likely only a harbinger of even higher prices to come. . The increase reflects the 12 months ending in February and does not include most of the oil and gas price increases that followed Russia’s February 24 invasion of Ukraine.
House prices have risen about 15% over the past year and up to 30% in some cities. Available homes were scarce even before the pandemic began two years ago, and rising prices and rising interest rates will make it even harder for Americans to secure new homes.
Inflation fears and geopolitical uncertainty are both having an impact, said Sam Khater, chief economist at Freddie Mac.
“Over the long term, we expect rates to continue to rise as inflation becomes more widespread and shortages increasingly affect many segments of the economy,” Khater said. “However, uncertainty regarding the war in Ukraine is leading to rate volatility that will likely continue in the near term.”
The 30-year rate rebounded this week after a 10-year Treasury jump, which topped 1.95%, said George Ratiu, head of economic research at Realtor.com.
“Investors are worried about rising inflation stemming from a likely ban on Russian oil imports amid a surge in the price of U.S. crude to over $130 a barrel, the highest point in 13 years,” he said. “The big question on the minds of many analysts is whether a 25 basis point hike will be enough given the severe labor shortages and inflation at levels not seen since the 1980s.”
At the current rate, the buyer of a median-priced home faces a mortgage payment more than $290 a month higher than a year ago, according to Realtor.com
“With not enough homes for sale, first-time buyers and homeowners looking for a home exchange are being stymied by soaring prices and higher interest rates,” Ratiu said. “The real challenge for Americans is that high inflation is eating away at growth in wages and salaries, in addition to soaring housing and the cost of living.”
Associated Press and CNN contributed to this report.