Mortgage Rates Rise for First Time Since May Bringing Changes

Mortgage rates have climbed for the first time since May, marking a shift in the market. This change is likely to impact borrowers who were waiting for rates to drop further before applying for a mortgage.

The rates have increased by 0.25% to 0.5% across various loan categories. This is a significant change, especially for those who were planning to take out a 30-year mortgage.

Homebuyers and refinancers will need to adjust their expectations and possibly pay more for their mortgages. This change may also affect the overall cost of homeownership.

The impact of this rate increase will be felt across the board, from first-time homebuyers to those refinancing their existing mortgages.

Mortgage rates have climbed for the first time since May, and it's worth taking a closer look at the current rates. The 30-year fixed mortgage rate has risen to 7.08%, its first time above the 7% threshold since May 31.

The 30-year fixed mortgage rate was 6.78% just four weeks ago, and 6.94% one year ago. This week's survey found that 30-year fixed mortgages had an average total of 0.29 discount and origination points.

Here are the current mortgage rates for different loan types:

The 30-year fixed mortgage rate is now almost a third of a percentage point above the June low of 6.77%, which was the cheapest mark we'd seen in two and a half months.

Mortgage rates have climbed significantly since May, with the average rate on 30-year mortgages reaching 7.1 percent, the highest since November. This is a troublesome sign for an already tight housing market, where potential home buyers and sellers are feeling the pinch.

The Federal Reserve's decision to raise the federal funds rate to fight decades-high inflation has had a dramatic upward impact on mortgage rates. The Fed has maintained the federal funds rate at its current level since July, with a seventh consecutive rate hold announced earlier this month.

Inflation has come down considerably, but it's still above the Fed's target level of 2 percent. As a result, the Fed is hesitant to start cutting rates, and mortgage lenders are watching the 10-year Treasury bond, which is tied to mortgage rates, closely. The 10-year Treasury yield has soared since the start of the year, now sitting at about 4.6 percent.

Here's a brief timeline of the key events that have led to the recent rise in mortgage rates:

The monthly payment is a significant expense for many families. Based on a 20 percent down payment and a 7.08 percent mortgage rate, the monthly payment of $2,179 amounts to 27 percent of the typical family's monthly income.

The national median family income for 2024 is $97,800, according to the U.S. Department of Housing and Urban Development. This means that the monthly payment is a substantial portion of the family's take-home pay.

The median price of an existing home sold in November 2024 was $406,100, according to the National Association of Realtors. This highlights the challenge of affording a home in today's market.

Understanding the change in mortgage rates can be complex, but it all comes down to a few key factors. One of the main drivers is the level and direction of the bond market, especially 10-year Treasury yields.

The Federal Reserve's current monetary policy also plays a significant role. In 2021, the Fed was buying billions of dollars of bonds to respond to the pandemic's economic pressures, which kept mortgage rates relatively low.

Competition between mortgage lenders and across loan types is another factor that affects mortgage rates. However, it's difficult to attribute changes to any one factor, as fluctuations can be caused by multiple factors at once.

The Fed's decision to taper its bond purchases downward in November 2021 had a significant impact on mortgage rates. By the time they reached net zero in March 2022, the market had already started to feel the effects.

The Fed aggressively raised the federal funds rate to fight decades-high inflation between 2022 and 2023. Although the fed funds rate doesn't directly influence mortgage rates, its indirect influence has resulted in a dramatic upward impact on mortgage rates over the last two years.

The Fed has maintained the federal funds rate at its current level since July, with a seventh consecutive rate hold announced earlier this month.

We track mortgage rates using data from reputable sources, including Freddie Mac and the Federal Reserve. This data helps us understand the current mortgage market and how it's changing.

The national and state averages cited in our reports are provided via the Zillow Mortgage API, assuming a loan-to-value ratio of 80% and an applicant credit score in the 680–739 range. This helps us provide rates that are representative of what customers can expect to see when receiving actual quotes from lenders.

Mortgage rates are influenced by factors such as inflation, the Federal Reserve's benchmark interest rate, and the 10-year Treasury bond yield. For example, the 10-year Treasury yield has soared since the start of the year, now sitting at about 4.6 percent.

We also consider the impact of the Federal Reserve's decisions on the mortgage market. The Fed's benchmark interest rate is currently the highest it's been in 22 years, which has pushed up mortgage rates.

Here are the sources we use to track mortgage rates:

The cheapest 30-year mortgage rates can be found in states like New York, North Carolina, Alaska, Louisiana, Tennessee, and Colorado.

If you're considering a mortgage in one of these states, you may be able to secure a lower interest rate compared to other states.

Mortgage rates in Iowa, North Dakota, Washington, D.C., Virginia, Maryland, and West Virginia are among the highest, so it's essential to research and compare rates before making a decision.

These states have varying credit score requirements, average mortgage loan types, and sizes, which can impact the interest rates offered by lenders.

Individual lenders in these states have different risk management strategies, which can also influence the rates they offer.

Fannie Mae and Freddie Mac are two government-sponsored entities that play a crucial role in the mortgage market. They provide liquidity to the market and help to set mortgage rates.

The Federal Reserve is another key player in the mortgage market, with its monetary policy decisions influencing mortgage rates. The Fed has been raising its benchmark interest rate to combat inflation, which has caused mortgage rates to rise.

Home price appreciation has been a concern in the housing market, with prices increasing rapidly in recent years. However, the rising mortgage rates may slow down home price appreciation in the future.

The Mortgage Bankers Association is a trade association that represents the mortgage banking industry. They provide insights and analysis on the mortgage market, including mortgage rates and home sales.

Here are some key players in the mortgage market:

The Mortgage Rates Center is a resource that provides information and analysis on mortgage rates and the mortgage market. It's a great place to stay up-to-date on the latest developments in the market.