The era of ultra-low mortgage rates is over.
The average rate on 30-year fixed mortgages topped 4% for the first time since May 2019, Freddie Mac said Thursday. At the beginning of the year, the average rate on America’s most popular mortgage was 3.22%. It reached an all-time low of 2.65% in January 2021 and has spent over half a year below 3%.
The cost of home loans rose ahead of the Federal Reserve’s decision on Wednesday to raise rates for the first time since 2018. And while the Fed’s quarter-point move didn’t affect Freddie Mac’s weekly average of 4.16% before the central bank’s announcement. , this will likely send the rates even higher. Mortgage rates are closely linked to 10-year US Treasury yields, which tend to rise along with the Fed’s base rate.
The rising cost of loans poses another challenge for would-be homeowners who are already facing skyrocketing home prices. The average rate of around 4%, while still historically low, is sharply higher than the rates below 3% that have been available for much of the past year. And the last time the 30-year mortgage rate was above 4%, the median home price was $277,000 — 26% lower than today.
According to data from Realtor.com, the monthly payment for a $375,000 house with a 4% interest rate is $220 higher than the payment for a house with a similar price in December 2020, when rates were near an all-time low. With a down payment of 20%, this will add $79,200 to a 30-year mortgage. News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.
Higher rates have begun to dampen demand for mortgages used to buy homes. Mortgage loan applications fell 3.9% in February from the same month last year, according to the Mortgage Bankers Association.
But demand has fallen less than expected, economists say, in part because inventories are tight. According to the National Association of Realtors, at the current pace of sales in January, the market had a record low supply of homes for 1.6 months.
“There are still a lot of people who can afford to accept these higher rates, perhaps people with some generational wealth or capital from previous deals,” said Selma Hepp, deputy chief economist at CoreLogic.
U.S. house prices hit an all-time high in 2021, but growth is expected to slow in 2022 due to a number of economic factors. Here’s what’s driving the housing market and what it could mean for potential buyers and sellers. Photo: George Frey/Bloomberg News
Rising rates will make it harder for homeowners to save money by refinancing. According to mortgage company Black Knight Inc., the pool of borrowers who could lower their monthly payments through refinancing shrank to about 4 million in February, down from 18 million in February 2021.
The sharp decline in refinancing is expected to lead to a drop in total mortgage originations per family by almost 38% in the first quarter compared to the same period last year, according to Fannie Mae.
Write to Orla McCaffrey at [email protected]
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