December 9, 2022

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Mortgage rates top 4% for the first time since 2019

Mortgage rates top 4% for the first time since 2019

The era of ultra-low mortgage rates is over.

The average 30-year fixed-rate mortgage reached 4% for the first time since May 2019,

Freddy Mac

Thursday said. At the beginning of the year, the average interest rate on America’s most popular mortgage loan was 3.22%. It hit a record low of 2.65% in January 2021 and spent more than half the year under 3%.

Home loan costs were rising before Federal Reserve decision Wednesday to raise interest rates for the first time since 2018. And while the Fed’s quarter-point move did not affect Freddie Mac’s weekly average of 4.16%, recorded before the central bank’s announcement, it is likely To send higher rates. Mortgage rates are closely related to the yield on 10-year US Treasuries, which tend to rise along with the Fed’s benchmark interest rate.

Mortgages are the first place Americans feel the effects of the Federal Reserve’s decision to start raising interest rates to curb inflation, but it won’t be the last.

Banks borrow from each other at the Federal Reserve’s benchmark interest rate, which in turn Affects borrowing costs For all types of consumer and corporate debt. Interest rates on credit cards and auto loans, among other things, will rise if the Fed raises interest rates six more times this year, he noted on Wednesday.

Higher interest rates usually cause banks to pay more money to depositors, offsetting somewhat higher borrowing costs. But Banks don’t need more money right Now; Government stimulus during the pandemic has increased Americans’ savings, and thus total deposits in American commercial banks.

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High borrowing costs are another challenge that potential homeowners are already facing Housing price hike. The average rate is around 4%, while still historically low, sharply higher than the sub-3% rates that have been available for most of the past year. And the last time the 30-year mortgage rate exceeded 4%, the median home price was $277,000 — 26% less than it is today.

The monthly payment on a $375,000 home with a 4% interest rate is $220 higher than the payment on a similarly priced home in December 2020, when prices were near record lows, according to Realtor.com data. With a 20% down payment, that would add $79,200 to a 30-year mortgage.

News CorpAnd the

Owner of The Wall Street Journal, he also operates Realtor.com under license from the National Association of Realtors.

Higher interest rates prompted David and Rebecca Keizer to pay an additional $4,000 to secure a 3.75% interest rate in February while searching for a home in suburban Cincinnati. The couple thought the cost would be worth it, if they stayed in a home in their target price range for at least five years.

The seller accepted one of his offers this month. The couple and their two young daughters are moving from Florida, where the mortgage on their existing home carries an interest rate of 4.125%.

“I only knew 4% of the mortgage,” said Mr. Keizer. “And I wasn’t interested in knowing about 5%.”

Higher rates are beginning to dampen the demand for mortgages used to buy homes. Mortgage purchase orders fell 3.9% in February compared to the same month last year, according to the Mortgage Bankers Association.

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But economists said demand is lower than expected, in part because of a tight inventory. At the current pace of sales, there was a record 1.6-month home supply drop on the market in January, according to the National Association of Realtors.

“There are still a lot of people who can afford these high rates, maybe people who own some wealth or equity from previous generations,” said Salma Hebb, deputy chief economist at CoreLogic.

US home prices hit an all-time high in 2021, but those increases are expected to slow in 2022 thanks 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 Fry/Bloomberg News

Higher prices will make it difficult for homeowners to save money by refinancing. The group of borrowers who could reduce their monthly payments by refinancing fell to about 4 million in February, down from nearly 18 million in February 2021, according to the mortgage data company.

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The sharp decline in refinancing is expected to reduce total single-family mortgage facilities by approximately 38% in the first quarter compared to the same period last year.

Fannie Mae

He said.

The Fed’s decision to start ending Buying mortgage-secured securities The rates have been rising steadily in recent months. Weak investor demand for these home loan packages is causing lenders to increase the returns they are offering to investors, which means they must raise the rates they charge for mortgages within them.

Uncertainty over how the war in Ukraine will affect economic growth mortgage rates have slowed nearly 4% in recent weeks. after approaching the threshold In mid-February, prices fell again after the Russian invasion. Earlier this month, they started to rise again along with the yield on the 10-year Treasuries.

write to Orla McCaffrey at [email protected]

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