Mortgage rates jump higher after nearing 6%

The rate on the 30-year fixed mortgage increased to 6.32% from 6.12% the week prior, according to Freddie Mac. Rates had been flirting with 6% in recent weeks and were more than three-quarters of a point lower than in mid-November when the rate neared 7%.

But the recent spike eroded some of the newfound purchasing power buyers gained recently, dampening spirits. The small window for refinancing has also shut for many homeowners.

“In terms of home buying, elevated rates certainly are a deterrent for potential homebuyers,” Keith Gumbinger, vice president of HSH.com, told Yahoo Finance. “Still-high home prices combined with relatively high mortgage rates have crushed affordability.”

Purchase applications tumble

The number of Americans who said it’s a good time to buy fell to 17% in January from 21% in December, according to Fannie Mae. A year ago when rates were slightly above 3%, roughly 59% of respondents thought it was a good time to buy.

“Potential buyers remain quite sensitive to the current level of mortgage rates, which are more than two percentage points above last year’s levels and have significantly reduced buyers’ purchasing power,” Joel Kan, deputy chief economist at the Mortgage Bankers Association, said in a statement this week.

That was evident in the latest measure of homebuying activity.

The volume of mortgage applications for a purchase fell 6% for the week ending Feb.10, marking its second drop in three weeks due to higher rates, according to MBA’s latest survey of applications. Overall purchase application volume was down 40% from a year ago, the MBA cited, its lowest point since the beginning of the year.

“Our latest analysis shows the income needed to buy a median-priced existing home in the fourth quarter of 2022 was about 48% higher than that which was needed in the fourth quarter of 2021,” Gumbinger said. “That’s not something that’s easily overcome when incomes are only rising about 5% per year or so.”