The average interest rate on a 30-year mortgage has now exceeded 5%, the highest point in more than a decade. The sudden rise has cooled interest in home loans, and some experts predict that home sales could slow this year as some buyers appreciate the market.
Interest rates rose to 5.08% on April 6, according to the Mortgage News Daily, although the Mortgage Bankers Association listed slightly lower average rates at 4.90%. This is 4.67% last week and an increase of about two percentage points over the previous year.
The average home loan rate has not exceeded 5% since January 2010, according to data from Freddie Mac.
Each percentage point increase is added hundreds of dollars to monthly payments for home buyers with an average price of about $ 400,000. Higher rates are bringing millions of buyers to market, while making current homeowners less attractive to refinance their properties. Home loan applications fell more than 6% during the week ending April 1, according to the Association of Mortgage Bankers.
Homebuyers have been hit with a “double whammy” this year by rising house prices and rising mortgage rates, Zillow senior economist Jeff Tucker told CBS MoneyWatch.
“What it means is that any particular home you buy will be more expensive to pay monthly,” Tucker said. “For some people, that means looking at a smaller house, in a different neighborhood, or a townhouse instead of a single-family home.”
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 should be extremely attuned to your budget and be careful not to bid too high to bid on new home listings,” Fairweather told CBS MoneyWatch. “You should also take a look at homes that have been on the market for more than a week or that have recently suffered a drop in price, as you can avoid some of the more intense competition and make a reasonable offer.”
No All home buyers are appalled by the higher rates, said Matthew Pointon, senior real estate economist at Capital Economics. Mortgage applications continue to hit parts of the country “because some homes are trying to buy now before rates go up even further,” Pointon said in a research note Wednesday.
Pandemic real estate bubble?
During the pandemic, mortgage rates hit historic lows, in part because the Federal Reserve kept the federal funds rate close to zero and the federal government injected billions into the economy through its stimulus programs. These very low mortgage rates, which fell to 2.65% in January 2021, spurred millions of consumers to jump into the real estate market.
With strong demand, sellers demanded more for their properties, which led to double-digit annual price increases across the country. In February, house prices rose 20% from a year earlier, according to data released Wednesday by CoreLogic.
The rapid rise in house prices during the Coronavirus pandemic has pushed the dream of owning a home beyond the possibilities of many middle-class Americans, who are increasingly bidding against higher-income investors and buyers for an ever-shrinking set of homes. Between cities experiencing some of the largest home price increases in the US they are Atlanta, Charlotte, North Carolina, Phoenix, Miami, Florida and San Diego.
But these rapid price increases have raised concerns about the housing market, with the Dallas Federal Reserve recently warning that the real estate market is showing “signs of a real estate bubble in the United States.”
With inflation at a 40-year high, the Federal Reserve started recently the first in a series of interest rate hikes in 2022, and mortgage rates increase along with them.
Rising interest rates are forcing some Americans to rethink their plans to buy a home. The drop in mortgage applications last week was mainly due to “the rapid rise in mortgage rates,” the Association of Mortgage Bankers said.
There are indications that rising rates are beginning to affect the real estate market in other ways, with Redfin predicting that house price growth will slow. More sellers are lowering their sale prices after the listing, the real estate company said last week.
There is no guarantee that interest rates will rise again, but the Federal Reserve has indicated that it plans to increase its short-term debt rate a few more times this year. Home lenders often raise their interest rates in a blockchain move with the Fed.
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