Mortgage rates up again

Washington, D.C. (CNN) Mortgage rates rebounded this week after falling for two straight weeks.

According to Freddie Mac data released on Thursday, a 30-year fixed-rate mortgage averaged 6.39% in the week ending May 18, down from 6.35% the week before. A year ago, the 30-year fixed interest rate was 5.25%.

Crossing economic currents have kept interest rates in the 10 basis point range over the past few weeks, said Sam Khater, chief economist at Freddie Mac.

“While affordability remains an obstacle, homebuyers are getting used to current rates and continue to push for home ownership,” Khater said.

Mortgage rates exceeded 5% for the first time since 2011 just over a year ago, and stayed above 5% for all but one week of last year. Since then, they have risen to as much as 7.08%, last reached in November.

Rates have gone up and down over the past month but have stayed below 6.5%.

“Mortgage rates have been in the range of around 6% to 7% for the past eight months and are likely to stay in that range until incoming economic data clarifies the path of the economy,” said Hannah Jones, an economic data analyst at “Buyer demand has been sensitive to the ebb and flow of mortgage rates, but home prices close to peaks and elevated inflation mean many potential buyers are still waiting on the sidelines.”

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders nationwide. The survey only includes borrowers with a 20% discount and excellent credit.

Inflation is falling, but there is uncertainty about the debt limit

Mortgage rates surged after 10-year Treasuries rose this week as investors continue to scrutinize inflation-related data and keep a close eye on ongoing standoff in Washington about raising the debt limit, i.e creating uncertainty.

While inflation is falling, recent data shows signs of a stubborn but slowing economy, Jones said, suggesting the Federal Reserve’s rate hikes are having the intended effect. However, inflation remains well above the central bank’s target and unemployment remains at an all-time low.

If no agreement is reached to extend the debt ceiling, the United States defaults on its debts for the first time. This could further crush an already struggling housing market, causing the cost of buying a home to rise by 22% and jump mortgage interest rates up to over 8%according to one prediction.

“The economy remains on fragile foundations and a US default would trigger a spike in interest rates that could undo any progress towards a healthier housing market by further curbing home sales,” Jones said.

The default situation remains unlikely, but as Jones said, the closer we get to a possible event date – which could be the same already June 1 — without increasing the debt limit, more households will experience higher interest rates.

“The sooner the debt deadlock is resolved, the less likely it is to negatively impact households already plagued by high prices,” she said.

Buyers remain price sensitive

Homebuyers who struggle with higher mortgage rates also face low stocks of homes to buy and still strong competition from other buyers, especially in starting and mid-range prices. Although home sales are declining, demand for the few homes appearing on the market in the area may lead to a bidding war which raises prices.

This makes buyers even more price sensitive as they calculate how much home they can afford.

“Higher rates and low stock levels continue to keep many potential first-time buyers out of the way,” said Bob Broeksmit, president and CEO of the Association of Mortgage Bankers. Applications for FHA loan purchases – popular with many beginners – are down 5% from last week and 17% from last year.

Inventories are low because many homeowners who might otherwise put their home on the market hold back and keep mortgage rates a few percentage points lower than the rate they would take if they bought another home.

“Limited buyers and reluctant sellers mean the spring market hasn’t gained as much momentum as in previous years, but any improvement in affordability is met with an increase in buyer activity,” Jones said. “Prices are likely to remain elevated in many markets where low inventory, especially at an affordable price, creates a competitive environment.”

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