Mortgage rates continued their upward trek. Specifically, the 30-year fixed mortgage rate surged to 4.42% from 4.16% the previous week. Elevated inflation and the Federal Reserve's tightening policy pushed up mortgage rates. Since the beginning of the year, rates have already increased by 1.2%. As a result, the typical home buyer needs to spend $250 more every month to be able to purchase a home.
Impact of higher rates on home sales
Both new and existing-home sales dropped in February. Existing-home sales fell by 7.2% and new home sales declined by 2.0% compared to January. These headline figures are the seasonally adjusted figures that are reported to the news. However, this was not the actual number of sales but the number of sales after adjusting for seasonality. For everyday practitioners, simple raw counts of home sales are often more meaningful than the seasonally adjusted figures as the raw count helps better assess how busy the market has been. According to the raw count of sales, both existing- and new-home sales improved compared to January. Existing- and new-home sales rose by 1.4% and 1.6%, respectively. Compared to pre-pandemic, home sales in February outperformed. For example, in February 2018, when mortgage rates were also rising, about 320,000 existing homes were sold. By comparison, nearly 360,000 existing homes were sold last month. Although rising mortgage rates increase borrowing costs, making housing less affordable, about 40% of the millennial renters who approach family life can still afford to buy the typical starter home.