Mortgage Rates Jump as Potential Debt Ceiling Deal Comes Into Focus

Redfin reported on Thursday (5-25-23) that housing payments hit a new high in the week of May 22nd as mortgage rates jumped due to progress on a possible debt ceiling deal.

On May 25th, the daily average mortgage rate hit 7.12%, its highest level since November 2022. Redfin says that translates into the typical US homebuyer’s monthly mortgage payment hitting a record-high of $2,614 at a 6.57% mortgage rate (the current weekly average).

Redfin noted that the rate increase has dampened homebuying demand. Pending home sales dropped 17.4% from a year earlier during the four weeks ending on May 21st, the second-biggest dip since January (the biggest was a 17.5% decline in early April). Not surprisingly, mortgage purchase applications also declined this week. Potential sellers are also continuing to back off, with new listings of homes for sale dropping 24%—one of the largest declines since May 2020.

Adding additional background and her analysis, Redfin’s Economics Research Lead Dr. Chen Zhao said:

“People may be wondering why rates are surging as we come up against a potential debt crisis. Right now, the way investors are reacting is the driving force. Mortgage rates have increased over the past two weeks because it looks more likely that the US government will avoid hitting the debt ceiling That may seem counterintuitive, but optimism is driving rates up because an economic crisis would lead to the Fed lowering rates as they try to prevent a recession. Financial markets felt the risk of default was unusually high for the last month or so, which caused rates to stay lower than they otherwise would have been. Now that Democrats and Republicans have come to the negotiating table and are making some progress toward a deal, rates are going up.”