According to CNBC, a sharp sell-off in the bond market is sending mortgage rates to the highest level in seven years. The average contract rate on the 30-year fixed loan will likely end the day as high as 4.875 percent for the highest creditworthy borrowers and 5 percent for the average borrower, according to Mortgage News Daily. Mortgage rates, loosely follow the yield on the 10-year Treasury. They leveled off in March and early April, only to begin rising yet again. Tuesday's move follows positive economic data in retail sales, suggesting that newly imposed tariffs would not hit sales as hard as expected. Rates are expected to rise, as the Federal Reserve increases its lending rate and pulls back its investments in mortgage-backed bonds. "The bottom line is that the writing on the wall has been telling rates to go higher since at least last September," said Matthew Graham, chief operating officer of Mortgage News Daily.
Higher mortgage rates often chill prices, as sellers have to adjust to what buyers can afford, but with supply and demand so far out of whack, that is unlikely to happen in the near term. If rates move significantly higher, past 5 percent on the 30-year fixed, prices will have to adjust.