Mortgage rates jumped to the highest level in two months ahead of the pivotal spring home-buying season, throttling demand among would-be buyers.
Mortgage buyer Freddie Mac said Thursday that the average rate on a 30-year loan this week rose to 6.94% from 6.9% — the highest level since mid-December. While that is down from a peak of 7.79% in the fall, it remains sharply higher than the pandemic-era lows of just 3%.
“Mortgage rates continued their ascent this week, reaching a two-month high and flirting with seven percent yet again,” said Sam Khater, Freddie Mac’s chief economist. “The recent boomerang in rates has dampened already tentative homebuyer momentum as we approach the spring, a historically busy season for homebuying.”
MORTGAGE RATES OVER 7% ARE THROTTLING HOMEBUYER DEMAND
Below, you can calculate how volatile increases and decreases in rates could affect the typical cost of a monthly mortgage.
Even just a minor change in rates can affect how much would-be homebuyers pay each month.
A recent study by LendingTree compared the average monthly payments on 30-year fixed-rate mortgages in April 2022 — when the rate hovered around 3.79% — and one year later, when rates jumped to 5.25%.
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It found that higher rates cost borrowers hundreds more each month and potentially added as much as $75,000 over the lifetime of the 30-year loan.
The interest rate-sensitive housing market has cooled rapidly as a result of the Federal Reserve’s aggressive tightening campaign. Policymakers lifted the benchmark federal funds rate 11 times over the course of 16 meetings in an attempt to crush stubborn inflation and slow the economy.
Officials signaled during their most recent policy-setting meeting in January that they are done raising interest rates, but they are not quite ready to pivot to cutting them yet. Investors had previously penciled in a series of aggressive rate reductions beginning as early as March.
Now, most economists expect the cuts to begin in May or June amid signs that inflation remains abnormally high.
Higher mortgage rates are not only dampening consumer demand, they are limiting inventory. That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.
Available home supply remains down a stunning 34.3% from the typical amount before the COVID-19 pandemic began in early 2020, according to a separate report published by Realtor.com.
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