The average rate on the popular 30-year fixed mortgage hit 7.22% on Thursday, according to Mortgage News Daily. That’s the highest point since early November.
Rates had already begun rising last week, following signals from Federal Reserve Chairman Jerome Powell that the central bank may continue raising interest rates following a pause in June.
In remarks to Congress just after the June Fed meeting, Powell said the central bank has “a long way to go” to bring inflation back to the 2% goal. The next interest rate decision is on July 26.
The 30-year fixed mortgage rate has now risen 31 basis points in just the past week. For a homebuyer taking out a $400,000 mortgage, the monthly payment of principal and interest rose to $2,720 from $2,637 in just one week.
For sellers, higher mortgage rates have created a so-called golden handcuff effect. The vast majority of homeowners today have mortgages with interest rates below 4% or even below 3%, as rates hit record lows in the first year of the Covid pandemic. They now don’t want to move and have to give up that low rate to buy at a higher rate.
“Recent data indicated that nearly 82% of home shoppers reported feeling locked-in by their existing low-rate mortgage, while around 1 in 7 homeowners without a selling plan cited their current low rate as their reason for remaining on the sidelines,” Jiayi Xu, an economist at Realtor.com, said in a release.
Because of that, there is a currently a critical shortage of homes for sale, with year-to-date new listings now 20% behind last year’s pace.