Posted on 05/30/23
| News Source: CNN
Mortgage rates are beginning to feel the impact of the debt-ceiling standoff, jumping higher for the second week in a row amid the uncertainty.
The 30-year fixed-rate mortgage averaged 6.57% in the week ending May 25, up from 6.39% the week before, according to data from Freddie Mac released Thursday. A year ago, the 30-year fixed-rate was 5.10%.
“The U.S. economy is showing continued resilience which, combined with debt ceiling concerns, led to higher mortgage rates this week,” said Sam Khater, Freddie Mac’s chief economist.
Mortgage rates topped 5% for the first time since 2011 a little more than a year ago and have remained over 5% for all but one week during the past year. Since then they have gone as high as 7.08%, last reached in November. Since mid-March, rates have gone up and down but have stayed under 6.5%.
But with current uncertainty, rates tipped over 6.5% this week. Zillow projects that home buying costs could spike by 22% and mortgage rates could top 8% should the US default on its debt. Even the threat of a deal not being reached is having a financial impact on people. (Here’s how to be prepared.)
The rate climbed this week following the trend of 10-year Treasury yields, as investors closely track the ongoing debt ceiling negotiations and evaluate the possible direction of Federal Reserve interest rate policy, said Jiayi Xu, an economist at Realtor.com.
“Although the probability of a default remains low, even the fears and panic related to a potential government default could cause creditors to ask for higher interest rates from the US Treasury, resulting in a significant increase in various borrowing costs, including mortgages,” said Xu. “Resolving the debt impasse sooner rather than later would mitigate potential adverse effects on the housing market, which is already contending with high prices and elevated mortgage rates.”