Average mortgage rates rose from 6% in late February to 7% this week, ahead of the Federal Reserve's first rate hike in three years today. That’s because inflation picked up after the oil price shock and continuing concerns about unconstrained inflation. The whopping, still-growing federal deficit does not help, as more government borrowing means less capital available for the private sector, including for mortgages.
Mortgage rates can come down once oil prices retreat and with a credible plan to reduce the budget deficit. Also, if AI technology boosts worker productivity, then inflation and long-term borrowing rates, like for mortgages, can decline. These developments are highly uncertain, at least in the upcoming months. Expect 7% as the new normal. Job additions will be the one factor that can support homebuying.
