Mortgage rates rise after disappointing March inflation report

By Bryan Mena, CNN

Washington (CNN) — Mortgage rates drifted higher this week, and could increase further, in a sign that America’s affordability crisis isn’t letting up.

The 30-year fixed-rate mortgage averaged 6.88% in the week ending April 11, up from 6.82% the previous week, according to Freddie Mac data released Thursday. A year ago, the average 30-year fixed-rate was 6.27%.

Rates have mostly held steady in the past several weeks, but they could rise even higher, potentially crossing the uncomfortable psychological threshold of 7%, if inflation proves to be more stubborn than expected.

The Federal Reserve doesn’t directly set mortgage rates, but its actions do influence them, and hotter-than-expected inflation readings could keep the central bank from reducing interest rates.

“Mortgage rates have been drifting higher for most of the year due to sustained inflation and the reevaluation of the Federal Reserve’s monetary policy path,” said Sam Khater, Freddie Mac’s chief economist, in a release. “While newly released inflation data from March continues to show a trend of very little movement, the financial market’s reaction paints a far different economic picture.”

Mortgage rates track the benchmark yield on the 10-year US Treasury note, which moves in anticipation of the Fed’s decisions. The yield topped 4.5% Wednesday, the highest level since November, after the latest Consumer Price Index showed persistent price pressures in March. That doesn’t bode well for lower mortgage rates, and economists don’t expect rates to fall below 6% this year, especially if the Fed does not end up cutting interest rates.

But, for now, officials are still expecting to cut rates at some point this year, though that may happen later than previously expected. That could help alleviate some pressure in the country’s tough housing market.

Inventory gains could improve affordability

Mortgage rates are not expected to drop meaningfully this year, but further improvement in housing inventory could improve affordability. The National Association of Realtors said that more homes came to market in February, which helped drive up sales that month.

Homeowners who locked in a low mortgage rate before the Fed began to lift rates in 2022 have largely preferred not to sell in recent years, contributing to historically low inventory. That may be starting to change.

Total housing inventory rose 5.9% in February from January, to 1.07 million units. Inventory was up 10.3% in February from a year earlier, giving buyers more choices and helping ease some upward pressure on prices.

A lack of homes has been a longstanding issue keeping America’s housing market unaffordable and is especially frustrating for first-time buyers. President Joe Biden has laid out proposals to fix the housing market, such as tax credits and homebuilding initiatives but, even if they receive congressional approval, it’s unclear whether that will be enough.

Despite recent improvements, and even if the Fed does cut rates, as it has indicated, the main issue continues to be that supply simply is not keeping up with demand, keeping a home purchase out of reach for the vast majority of Americans.

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