The housing market looks set to begin its busy season the same way it ended last year: with high home prices and rising mortgage rates.
The 10-year Treasury yield, a benchmark for mortgage rates, rose to 4.163% on Monday, according to Dow Jones Market Data. Combined with Fridays’ increase, it was the largest two-day gain since June 2022. The yield’s rise follows hotter-than-expected jobs and ISM price data that suggest the Federal Reserve’s long-awaited rate cuts might be further away than expected.
Such a gain pushed one measure of mortgage rates above 7% for the first time since mid-December. Mortgage News Daily’s survey pegged the 30-year fixed mortgage rate at 7.04% at midday on Monday.
By now, prospective buyers are well acquainted with mortgage rate volatility: a 30-year fixed rate fell as low as 2.65% in early 2021, according to
Freddie Mac,
a historic low. Over the ensuring years, mortgage rates climbed to two-decade highs, peaking at 7.79% in late October 2023. Freddie Mac’s weekly measure of mortgage rates was 6.63% last week, but the jump in Treasury yields suggests it’s headed higher this week.
The recent rise in rates, combined with still-high prices, could put pressure on prospective buyers as the typically busy spring season approaches. The median home sold for $361,245 in the four weeks ended Jan. 28,
Redfin
said last week—up 5.5% from one year prior.
Four Democratic U.S. senators—Elizabeth Warren, John Hickenlooper, Jacky Rosen, and Sheldon Whitehouse—published an open letter about housing costs to Federal Reserve chair Jerome Powell late last month. “High interest rates have aggravated the country’s persistent crisis of housing access and affordability,” they wrote. “As the Fed weighs its next steps in the new year, we urge you to consider the effects of your interest rate decisions on the housing market and to reverse the troubling rate hikes that have put affordable housing out of reach for too many.”
But that’s not the Fed’s job, Powell said. “Our statutory goals are maximum employment and price stability, and that’s what we’re targeting,” he said last week during a post-Federal Open Market Committee meeting press conference, according to a Wall Street Journal transcript. “We’re not targeting housing price inflation, the cost of housing, or any of those things.”
The FOMC likely won’t cut rates in March, Powell said, as was previously expected by futures traders. Futures markets are now pricing five 0.25% rate cuts in for 2024, down from six late last month, according to the CME FedWatch tool.
The central bank is aware of the impact rate hikes and cuts have on the housing market, Powell added. ”On top of that, we have longer-run problems with the availability of housing,” he said. ”There hasn’t been enough housing built, and these are not things that we have any tools to address.”
Builder stocks were broadly lower on Monday, with the
iShares U.S. Home Construction
exchange-traded fund down 1.1% in the afternoon. After rising rapidly in the final months of 2023, builder stocks hit a speed bump: the ETF is down 0.8% year to date, compared with a 3.8% gain in the
S&P 500.
Barron’s wrote late last year that shifting expectations for Fed rate cuts could send mortgage rates up and builder stocks down.
Write to Shaina Mishkin at shaina.mishkin@dowjones.com
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