Mortgage demand has begun to flatten out after several weeks of growth, thanks to interest rates once again rising above seven percent. This increase in the mortgage interest rate is, ironically, fueled by positive economic data that increased the yield on 10-year Treasury bonds. However, this still bodes poorly for the normally robust spring season, where higher interest rates could place a hindrance on home sales.
Interest Rates Rise Above 7%
The interest rate for 30-year fixed rate mortgages with conforming loan balances hit 7.04% in the first week of February. While this is far from the recent high of over 8% that was hit during this past October, it is still significantly higher than it was even a week prior, when it sat at 6.64%. This sudden boost in interest rates is attributed to positive news from the Treasury, which saw a spike in yields from 10-year Treasury bonds.
Mortgage Demand Flattens Out
Meanwhile, mortgage demand dropped by about 1% week-over-week, effectively flattening compared to previous weeks. While this is better than it was in previous months, demand is still down 19% compared to the same time last year. This decline in demand is attributed largely to the rise in interest rates, which put a damper on the market’s recovery.
Strong Economic Data Keeps Rates High
A significant part of what has caused interest rates to rise is, ironically, that the Federal Reserve seems to expect that the economy is doing well. This bolsters the yield on the 10-year Treasury bond, which is seen as a reflection of how the Fed seems to view the economy at a given time. When the economy is doing well, yields tend to rise, which in turn tends to increase interest rates.
Concerns Over Spring Home Sales
This has raised concerns about the potential impact that rising interest rates could have on the spring season, which is typically the busiest season for home sales. Higher interest rates could suppress demand, right at a time when the market needs more people purchasing homes. And with housing prices still remaining high, rising interest rates could ensure the spring is not quite as bountiful as the market might want it to be.
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