Mortgage rates rose for the fourth consecutive week, hitting the highest level since the start of the pandemic.
Freddie Mac said in a statement Thursday that the average 30-year loan amounted to 3.56%, up from 3.45% last week and the highest since mid-March 2020.
The prices came after the recent rise in 10-year Treasury yields. Borrowing costs may continue to rise as the Federal Reserve looks to raise interest rates to curb spiraling inflation.
That could put the American dream of owning a home beyond the reach of those already struggling to find affordable options. Prices have fallen to a record low almost a year ago, and cheap borrowing costs have helped fuel an overheated housing market that has driven up property prices.
The average rate for 15-year fixed-rate mortgages, which is popular with those refinancing their homes, jumped to 2.79% from 2.62% last week.
“As a result of higher mortgage rates, purchase demand waned modestly ahead of the spring home buying season,” Sam Khater, chief economist at Freddy Mac, said in a statement. “However, supply remains near historically narrow levels and house prices remain high.”
However, borrowing costs may stabilize in the coming weeks, according to Keith Jumpinger, vice president of mortgage information firm HSH.com.
“We are starting to see signs that we may outpace prices,” Jumpinger said in an interview. “The Fed has made some transformation, but it is not clear if the transformation is complete yet.”
Mortgage rates were expected to rise this year after the Federal Reserve announced last month that it would begin to roll back its monthly bond purchases – which are aimed at lowering long-term interest rates – to slow accelerating inflation. But even with the expected three or four rate increases in 2022, the Fed’s key interest rate will remain historically low at around 1%.
Last week, the government reported that inflation rose to 7% in December from a year earlier, the largest such increase in four decades. In addition, the Department of Labor reported that prices at the wholesale level rose by a record 9.7% last month from December 2020.
In addition to rising inflation, experts expect strong economic growth and a tight labor market to continue to push interest rates higher.
Economists at Freddie Mac expect higher mortgage rates to lead to a modest decline in purchasing demand ahead of the spring home buying season. They noted that the supply of homes for sale is still limited and prices are still high.
The housing supply was tight long before the pandemic, and prices have risen nearly 20% over the past year. High mortgage rates can make it difficult for homebuyers to secure a new home.
New data released Thursday showed that sales of previously occupied homes fell in December for the first time in four months as many potential buyers became frustrated by the shortage of available homes – which fell to their lowest level in more than two decades.
Bloomberg and The Associated Press contributed to this report.