Average U.S. mortgage rate rises to highest level since March

The average long-term U.S. mortgage rate rose last week to its highest level since mid March, driving up borrowing costs for prospective homebuyers facing a housing market that’s constrained by a dearth of homes for sale.

Mortgage buyer Freddie Mac said Thursday that the average rate on the benchmark 30-year home loan rose to 6.57% from 6.39% last week. The average rate a year ago was 5.10%.

High rates can add hundreds of dollars a month in costs for homebuyers, limiting how much buyers can afford in a market that remains unaffordable to many Americans after years of soaring home prices and limited housing inventory.

The median monthly payment listed on applications for home purchase loans in April rose to $2,112, up nearly 12% from a year ago and a 0.9% increase from March, the Mortgage Bankers Association said Thursday.

The average rate on a 30-year home loan has risen two weeks in a row, echoing moves in the 10-year Treasury yield, which lenders use as a guide to pricing loans.

The 10-year Treasury yield has been mostly rising of late, climbing to 3.79% in afternoon trading Thursday. Two weeks ago, it was at 3.39%.

The move up in bond yields comes as investors react to stronger-than-expected economic data and the implications that could have on whether the Federal Reserve will raise interest rates again next month.

Bond traders are also factoring in the possibility that the U.S. government may default on its debt as the White House and GOP leadership wrangle over a deal to raise the federal government’s debt ceiling so it can avoid an unprecedented default as soon as June 1.

“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.

Jitters over the possibility that the government ends up defaulting on its debt could cause creditors to ask for higher interest rates on U.S. Treasury bonds, which could lead to a “significant increase” in borrowing costs, including mortgages, said Jiayi Xu, an economist at Realtor.com.

“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,” Xu said.

Investors’ expectations for future inflation, global demand for U.S. Treasurys and what the Fed does with interest rates influence rates on home loans.

The Fed has raised its benchmark interest rate 10 times in 14 months.