April Mortgage Outlook: Rates Continue to Rise

Inflation persists and lenders are getting stricter with their lending criteria. These conditions could push mortgage rates up in April, for the third month in a row.

Mortgage rates have peaks and valleys, and the most recent valley was in January, when the 30-year fixed-rate mortgage averaged 6.29% in NerdWallet’s survey. The 30-year mortgage climbed in February (average 6.63%) and again in March (6.76%).

That’s a big jump from early 2022, when a borrower with good credit could get a 30-year mortgage for just over 3%. Over the same period, the Federal Reserve raised short-term interest rates nine times in its quest for an inflationary lasso. This series of Fed rate hikes has pushed mortgage rates higher – and we’ll likely see at least one more increase, with no decrease in sight.

In its policy statement after the March 22 fed funds rate hike, the central bank hinted that at least one more rate hike is likely and that it expects “tighter credit conditions” . At a press conference, Fed Chairman Jerome Powell said his colleagues “don’t see rate cuts this year. They just don’t.”

The Fed is sending clear signals that interest rates can rise further and that lenders should become more cautious this year. As mortgage lenders get the hint and pull back, they could reduce the number of mortgages they’re willing to underwrite, meaning they’ll be able to resist the cut mortgage rates.

The failures of Silicon Valley Bank and Signature Bank are likely to force lenders to be more discerning when making loans, Powell said at his press conference. “In principle, in fact, you can consider this the equivalent of a rate hike or maybe more than that,” he said.

In his circumspect way, Powell seemed to be telling banks that they had better jump on the credit crunch bandwagon: be more careful about approving mortgage applicants and think twice about cutting interest rates. .

Mortgage rates have risen in response to inflation and the Fed’s rate hike efforts to control inflation. So if the inflation rate drops unexpectedly, mortgage rates could drop as well.

The next key date is the April 12 release of the March consumer price index. If it shows that core CPI is up 5.3% or less from 12 months earlier, a drop in mortgage rates is possible. (February’s number was 5.5%.)

Mortgage rates will settle lower when there is evidence for several months in a row that the inflation rate is on its way to the Fed’s 2% target. This fall in inflation could accompany a recession. The Fed is trying to engineer a decline in inflation without a recession, what is called a “soft landing”. The “pathway still exists” for a soft landing, Powell said during his press conference, but without a ton of conviction.

At the end of February, we predicted that “mortgage rates are more likely to stabilize or go up a little more”.