After treading water for months, US mortgage rates jumped higher Thursday following a string of strong employment and inflation reports.

The 30-year fixed-rate mortgage averaged 6.77% in the week ending February 15, up from 6.64% the previous week, according to data from Freddie Mac. A year ago, the average 30-year fixed-rate was 6.32%.

“On the heels of consumer prices rising more than expected, mortgage rates increased this week,” said Sam Khater, Freddie Mac’s chief economist.

“The economy has been performing well so far this year and rates may stay higher for longer, potentially slowing the spring homebuying season,” said Khater in a statement.

Mortgage applications to buy a home so far in 2024 are down in more than half of all states compared to a year earlier, Khater said.

“Mortgage rates have been volatile due to strong employment data, rising last week and leading to a 2% drop in applications,” said Bob Broeksmit, CEO of Mortgage Bankers Association in a release.

The US economy added a stunning 353,000 jobs in January, almost double expectations, according to the latest monthly employment snapshot from the Labor Department.

More homes on the market and lower mortgage rates would be the two main drivers of any meaningful jump in home sales this spring, Broeksmit said.

The average mortgage rate is based on mortgage applications that Freddie Mac receives from thousands of lenders across the country. The survey includes only borrowers who put 20% down and have excellent credit. A current buyer’s rate may be different.

Inflation remains stubbornly high

Mortgage rates are climbing because the economy is still hot.

In addition to strong employment numbers, the Consumer Price Index data for January, released on Tuesday, showed that inflation slowed less than expected last month.

After enduring 11 interest rate hikes over the past two years, the housing market has all but frozen, with sales dropping to the lowest level in 28 years. Economists, investors and participants in the housing market are waiting for the Federal Reserve to move beyond holding steady and to cut its benchmark lending rate, signaling inflation is hitting its target.

But Fed Chair Jerome Powell has stressed that it is unlikely the central bank will introduce a rate cut at its next policy meeting, since incoming economic data remains so robust.

“The latest inflation and employment measures retained strength in January, confirming that a rate cut is unlikely in March,” said Hanna Jones, senior economic research analyst at Realtor.com. “As a result, mortgage rates are likely to continue to hover in the high-6% range until more definitive progress has been made towards [the central bank’s goal of] 2% inflation.”

While the Fed does not set the interest rates that borrowers pay on mortgages directly, its actions influence them.

Mortgage rates tend to track the yield on 10-year US Treasuries, which move based on a combination of anticipation about the Fed’s actions, what the Fed actually does and investors’ reactions, especially as related to inflation.

Buyers and builders looking for lower rates

In October, mortgage rates hit a 23-year high of 7.79%. But they’ve since fallen and have been hovering around 6.6% since mid-December, bringing some improved affordability to homebuyers who’ve been struggling in one of the least affordable markets in decades.

The median-price for a home in 2023 was $390,000 and a typical borrower putting 20% down would pay $2,028 in monthly principal and interest at today’s rates. That’s about $200 less than the $2,244 monthly payment for a house at the same price when rates were a full percentage point higher last fall.

But rates haven’t been slumping as quickly as some would like. Rates ticking back up may give buyers pause, said Lisa Sturtevant, chief economist at Bright Multiple Listing Service.

“Waiting for rates to fall further later this year could make sense for some buyers,” she said. “However, inventory will remain tight, and prices will continue to rise in most local markets. As a result, some buyers may find it makes sense to act now if they find a home that meets their needs.”

While the supply of homes increased slightly in January, from a year ago, it is still historically low.

Many homeowners remain reluctant to sell their home and become a buyer in this market because of the gap between the mortgage rate they have at 2%, 3% or 4% and where current rates stand.

This continued imbalance could push prices higher if buyer demand picks up faster than seller activity, Jones said.

However, small improvements are beginning to emerge in the housing market, as homebuying and selling activity starts to heat up ahead of the peak spring season.

Hopeful for lower rates, homebuilders’ sentiment is now at its highest level since last August, according to the National Association of Home Builders monthly survey, released Thursday.

“Buyer traffic is improving as even small declines in interest rates will produce a disproportionate positive response among likely home purchasers,” said Alicia Huey, NAHB chairman, in a statement.

“While mortgage rates still remain too high for many prospective buyers, we anticipate that due to pent-up demand, many more buyers will enter the marketplace if mortgage rates continue to decline this year.”

New construction continues to be a welcome relief valve for low inventory in the existing home market. The addition of needed inventory and the prospect of lower mortgage rates this year may spur buyers to jump into the market.

“This spring, buyers are likely to see lower mortgage rates than in the fall of 2023, which may mean more eager buyers in the market,” Jones said.