As interest rates continue to climb, mortgage rates rise at the fastest pace in three decades, setting a new record.
According to Freddie Mac, a government-sponsored mortgage business, 30-year fixed-rate mortgages now average 4.72 percent, a significant rise from 3.13 percent a year earlier.
The 30-year mortgage rate in the US rises to 4.72%, its highest level since December 2018. Last year it hit an all-time low of 2.65%.
The 0.96% increase in mortgage rates over the last 5 weeks is the largest 5-week spike we've seen since May 1987. pic.twitter.com/5nfcpSJzNU
— Charlie Bilello (@charliebilello) April 7, 2022
In a news statement, Freddie Mac Senior Economist Sam Khater noted mortgage rates have jumped by 1.5 percentage points in only the previous three months, marking the most considerable three-month increase since May 1994.
According to the report, “The rise in mortgage rates has dampened purchase activity to the point that the monthly payment for individuals wanting to buy a home has increased by at least 20 percent from a year ago.”
Mortgage rates are rising at the fastest pace since 1994 https://t.co/VIm3ZKxOXN
— IMA Southwest FL (@IMASouthwestFlo) April 10, 2022
Furthermore, the average rate for a 15-year fixed-rate mortgage is 3.83 percent, up from 2.42 percent a year ago, according to the Federal Home Loan Mortgage Corporation.
Conversely, CNBC real estate reporter Diana Olick reported the overall number of mortgage applications is rapidly declining, down 41 percent from a year ago.
Because so few homeowners can now profit from refinancing and so many potential homebuyers are priced out of the market, she noted “rising interest rates are killing the mortgage industry.”
In an interview with CNBC, economist Joel Kan explained “mortgage application volume continues to fall, due to fast-rising mortgage rates, as financial markets predict much tighter monetary policy in the coming months.”
As increased interest rates limit the motivation to refinance, the number of refinancing applications has plummeted to its lowest level since the spring of 2019.
Raising Interest Rates
According to reports, the Federal Reserve just agreed to raise interest rates by 0.25 percent, the first time the central bank has done so since 2018.
This is anticipated to be the first of several rate hikes this year.
As a result, the central bank’s near-zero interest rates helped to encourage both spending and borrowing throughout the 2020 recession, which helped fuel the unprecedented demand for real estate.
When questioned about the reasons for the increase in housing expenses, Phillips cited inflation — which is now running at an 8 percent year-over-year pace — rising timber and gasoline prices, as well as the ongoing impact of COVID-19.
The epidemic caused a halt to nearly all new building projects, which means the number of residences now on the market is far smaller than usual.
“It’s a basic case of supply and demand,” he stated. “Unfortunately, on that front, it is probable that it will take years before new home development can once again keep up with consumer demand.”
Some real estate professionals believe that higher mortgage rates will help to chill the market a little bit, according to Phillips.
When the pandemic hit, mortgage rates went down around two percent, which meant many individuals could purchase homes that would have been beyond their price range a few years earlier when rates were higher.
According to some analysts, “prices will continue to grow until the supply of properties matches the enormous demand that we’re witnessing right now.”