Mortgage Rates Hit 8-Month High, Squeezing Homebuyers
The American dream of homeownership is becoming increasingly elusive as mortgage rates continue to soar. Last week, the interest rate for the most popular U.S. home loan reached an eight-month high of 7.09%, marking the fifth consecutive weekly increase.
Rising Rates, Rising Concerns
This upward trend is putting pressure on would-be homebuyers, who are already grappling with rising house prices and limited supply. The average contract rate on a 30-year fixed-rate mortgage jumped 10 basis points in the week ended January 10, according to the Mortgage Bankers Association.
A Shift in Monetary Policy
The Federal Reserve’s decision to cut short-term borrowing costs in September seems to have had an unintended consequence. Despite the Fed’s policy rate being a full percentage point lower than it was in September, mortgage rates have moved in the opposite direction. This is largely due to a surge in Treasury yields, driven by concerns over sticky inflation and rising budget deficits.
Economic Uncertainty Ahead
As President-elect Donald Trump prepares to take office, his economic agenda is likely to have a significant impact on the housing market. His plan to extend the 2017 tax cuts is expected to add trillions of dollars to the national debt, which could further exacerbate the budget deficit. The U.S. budget deficit reached a record high of $1.8 trillion last year, excluding the COVID era.
Fed’s Cautious Approach
The Federal Reserve has signaled a slower pace of interest rate cuts this year, citing concerns over stalling progress toward its 2% inflation goal. The uncertainty surrounding Trump’s policies, including increased tariffs and immigration restrictions, is also likely to influence the Fed’s decision-making.
Inflation Watch
Economists are bracing for a fresh read on inflation, with expectations that the Labor Department’s report will show a 2.9% increase in the consumer price index for December, up from 2.7% in November. This could have significant implications for the housing market and the overall economy.
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