The dream of homeownership is becoming increasingly challenging as mortgage rates in the U.S. have reached their highest point as mid-February. This increase poses a notable hurdle for prospective homebuyers and casts a shadow over the spring homebuying season, potentially leading to a further slowdown in sales.

Key Rate Increases

• 30-Year Fixed-Rate Mortgages: According to Freddie Mac, the average rate on a 30-year mortgage climbed to 6.86% this week, up from 6.81% the previous week. While this is a notable increase, it’s still slightly below the 6.94% average from a year ago.
• 15-Year Fixed-Rate Mortgages: Homeowners looking to refinance aren’t immune to the rising rates. The average rate for 15-year fixed-rate mortgages also saw an uptick, increasing to 6.01% from 5.92% last week. Though, these rates remain lower than the 6.24% average from a year ago.

Impact on Homebuyers

Elevated mortgage rates translate to higher borrowing costs, potentially adding hundreds of dollars to monthly payments. This financial strain has discouraged many prospective homebuyers, resulting in a sluggish start to the spring homebuying season. Despite a significant increase in the inventory of homes on the market compared to last year, sales have been underwhelming.

The impact is already being felt in the housing market. Sales of previously occupied U.S. homes fell last month to the slowest pace for the month of april going back to 2009. This decline underscores the challenges facing the housing market as affordability becomes a growing concern.

underlying Economic Factors

The recent surge in mortgage rates mirrors movements in the 10-year Treasury yield,a benchmark that lenders use to determine home loan pricing. After a period of decline following a peak of around 4.8% in mid-January,the yield experienced a sharp increase last month,reaching 4.5%. This surge was fueled by a sell-off of government bonds, triggered by investor anxieties surrounding the previous administration’s trade policies.

While a temporary truce in trade disputes offered a brief respite, long-term bond yields have continued to climb. This upward trend gained further momentum after Moody’s lowered its credit rating for the U.S.,citing concerns about the nation’s growing federal debt.

Adding to the economic pressures, the House of Representatives recently approved a bill that would cut taxes, potentially adding trillions of dollars to the U.S. debt.This advancement further contributed to the rise in the 10-year Treasury yield, which stood at 4.56% in midday trading Thursday.