The average interest rate for a 30-year mortgage has now exceeded 5%, the highest point in more than a decade. The sudden surge has cooled interest in home loans, and some experts are predicting home sales could slow this year as some buyers are shut out of the market.
Interest rates hit 5.08% on April 6, according to Mortgage News Daily, although the Mortgage Bankers Association said average rates were slightly lower at 4.90%. It’s finishan increase of about two percentage points over the previous year.
The average mortgage rate has not exceeded 5% since January 2010, according to data from Freddie Mac.
Each percentage point increase addsto monthly payments for home buyers at the median price of . The higher rates are pushing millions of buyers out of the market, while making it less attractive for current owners to refinance their properties. Home loan applications fell more than 6% for the week ended April 1, according to the Mortgage Bankers Association.
Homebuyers have been hit by a “double hit” of rising home prices and rising mortgage rates this year, Jeff Tucker, senior economist for Zillow, told CBS MoneyWatch.
“What that means is that any particular home you buy will be more expensive to pay for on a monthly basis,” Tucker said. “For some people, that means looking at a smaller house in a different neighborhood, or a townhouse instead of a detached house.”
Rising interest rates also mean homebuyers may want to change their buying strategy, said Redfin chief economist Daryl Fairweather.
“If you’re looking for a home right now, you have to be extremely budget-friendly and be careful not to overbid newly listed homes,” Fairweather told CBS MoneyWatch. “You should also take a look at homes that have been on the market for more than a week, or ones that have recently seen a price drop, as you may be able to avoid some of the most competition. intense and make a reasonable offer.”
Not all homebuyers are spooked by higher rates, said Matthew Pointon, senior real estate economist at Capital Economics. Mortgage applications continue to pour in in parts of the country “because some households are trying to buy now before rates rise further,” Pointon said in a research note Wednesday.
Pandemic housing bubble?
During the pandemic, mortgage rates hit historic lows, in part because the Federal Reserve kept the federal funds rate near zero and the federal government pumped trillions into the economy through its stimulus programs. These ultra-low mortgage rates – which dropped as low as 2.65% in January 2021 – have enticed millions of consumers to jump into the real estate market.
With demand strong, sellers have been asking for more for their properties, driving double-digit annual price increases across the country. In February, home prices jumped 20% from a year earlier, according to data released Wednesday by CoreLogic.
The rapid rise in house prices during thepushed the beyond the means of many middle-class Americans, who are increasingly bidding against investors and high-income buyers for a dwindling stock of homes. Among the cities are Atlanta, Charlotte, North Carolina, Phoenix, Miami, Florida and San Diego.
This rapid rise in house prices has raised concerns about the housing market, with the Dallas Federal Reserve recentlythat the real estate market is showing “signs of a real estate bubble in the United States”.
With inflation at its highest level in 40 years, the Federal Reserve has recently startedin 2022 – and mortgage rates rise with them.
There are signs that rising mortgage rates are starting to impact the housing market in other ways, with Redfin predicting house price growth will slow. More sellers are reducing their asking prices after listing, the property company said last week.
There is no guarantee that interest rates will rise again, but the Fed has signaled that it plans to raise its short-term borrowing rate a few times this year.