Borrowing costs have climbed to their highest level since 2008, sending shock waves through the housing market.

Mortgage rates have climbed to their highest level since 2008, pinching home buyers’ budgets. The 30-year fixed-rate mortgage averaged 5.78% this week, way above its 2.93% average just one year ago, Freddie Mac reports. The Federal Reserve’s decision Wednesday to raise its key benchmark rate by the highest amount in 28 years sent shock waves through financial markets, including adding further pressure on mortgage rates.

“These rising mortgage rates hurt affordability and decrease the purchasing power of many buyers,” Nadia Evangelou, senior economist and director of forecasting at the National Association of REALTORS®, wrote on the association’s blog. “In addition to increasing the amount buyers will pay to borrow for their mortgage, higher interest rates lower their purchasing power since a larger portion of their monthly payment will be put toward interest.”

This means more buyers must readjust their home-shopping budgets, as the impact of higher rates translates to a 25% drop in house hunters’ purchasing power since the beginning of the year. For example, a typical buyer could afford a $360,000 home with a $1,400 monthly mortgage payment at the beginning of the year. Now, with near-6% mortgage rates, a $1,400 monthly payment translates to a $270,000 home.

Where Do Rates Go From Here?

This week’s 5.78% average for the 30-year fixed-rate mortgage is up from 5.23% last week. Every bit of that bump is being felt by home buyers, economists say. For example, a $300,000 loan with a rate of 5.23% would cost a borrower about $1,653 per month (excluding taxes and insurance). That same loan at this week’s 5.78% average would cost $1,756—an extra $1,236 a year, says Jacob Channel, LendingTree’s senior economist.

The latest increase in mortgage rates has largely been attributed to the Fed’s hike of 75 basis points to its key benchmark rate. “It’s possible that this large increase could be somewhat of an over-correction on the part of lenders, and, as a result, it may fall somewhat over the coming weeks as lenders better adjust to the current high-inflation environment,” Channel says. “Mortgage rates have already risen considerably higher and faster than what most predicted they would at the start of the year—and, as evidenced by today’s latest figures, lenders have shown a willingness to continue to raise rates, even as homebuyer demand falls.”

Mortgage applications for home purchases—viewed as a gauge of future homebuying activity—are down 16% year over year, according to the Mortgage Bankers Association.

Hikes Across the Board

Freddie Mac reports the following national averages for mortgage rates for the week ending June 16:

• 30-year fixed-rate mortgages: averaged 5.78%, with an average 0.9 point, rising from last week’s 5.23% average. A year ago, 30-year rates averaged 2.93%.
• 15-year fixed-rate mortgages: averaged 4.81%, with an average 0.9 point, increasing from last week’s 4.38% average. A year ago, 15-year rates averaged 2.24%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.33%, with an average 0.3 point, rising from last week’s 4.12% average. A. year ago, 5-year ARMs averaged 2.52%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining a mortgage.

©National Association of REALTORS®
Reprinted with permission

NAR economist says homebuying costs have increased $800 every month so far this year.

Mortgage rates inched closer to 6% this week. The 30-year fixed-rate mortgage averaged 5.81%, up modestly from 5.78% last week, according to Freddie Mac. Borrowing costs are mounting higher and higher for potential home buyers, who now find themselves squeezed both financially and by low inventory.

“Since the beginning of the year, home buying has cost about $800 more every month,” Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, writes on the Economists’ Outlook blog. “These higher mortgage rates hurt affordability, and middle-income home buyers can afford to buy fewer homes. Even though inventory has increased 13% since January, not all home buyers can afford to buy these additional homes. In fact, in order to be able to afford those homes, it appears that buyers need to earn more than $150,000 per year.”

Still, rising rates are tamping down previously frenzied demand, which may be a positive thing for the market. “The combination of rising rates and high home prices is the likely driver of recent declines in existing-home sales,” says Sam Khater, Freddie Mac’s chief economist. “However, in reality, many potential home buyers are still interested in purchasing a home, keeping the market competitive but leveling off the last two years of red-hot activity.”

Freddie Mac reports the following national averages for mortgage rates for the week ending June 23:

• 30-year fixed-rate mortgages: averaged 5.81% with an average 0.8 point, up from last week’s 5.78%. A year ago, the 30-year fixed-rate mortgage averaged 3.02%.
• 15-year fixed-rate mortgages: averaged 4.92% with an average 0.9 point, up from last week’s 4.81%. A year ago, the 15-year fixed-rate mortgage averaged 2.34%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.41% with an average 0.3 point, up from last week’s 4.33%. A year ago, the five-year ARM averaged 2.53%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining a mortgage.

©National Association of REALTORS®
Reprinted with permission

The interest rate on the 30-year fixed mortgage fell this week, offering relief to home buyers who are reeling from escalating costs.

The quick rise in mortgage rates over the last few weeks is taking a pause. The 30-year fixed-rate mortgage averaged 5.7% this week, dropping from last week’s 5.81%, according to Freddie Mac. Still, rates remain well above where they were a year ago, when they averaged below 3%. Higher rates have been sending shock waves through the housing market, potentially adding hundreds of dollars to monthly mortgage payments and spooking interested home buyers.

Since the beginning of the year, home buying has cost about $800 more every month, Nadia Evangelou, senior economist and director of forecasting at the National Association of REALTORS®, wrote on the association’s blog. The higher mortgage rates have hurt affordability, and fewer middle-income home buyers can now afford to buy homes, Evangelou notes.

“The rapid rise in mortgage rates has finally paused, largely due to the countervailing forces of high inflation and the increasing possibility of an economic recession,” says Sam Khater, Freddie Mac’s chief economist. “This pause in rate activity should help the housing market rebalance from the breakneck growth of a seller’s market to a more normal pace of home price appreciation.”

Freddie Mac reported the following national averages for the week ending June 30:

• 30-year fixed-rate mortgages: averaged 5.7%, with an average 0.9 point, dropping from last week’s 5.81% average. Last year at this time, 30-year rates averaged 2.98%.
• 15-year fixed-rate mortgages: averaged 4.83%, with an average 0.9 point, dropping from last week’s 4.92% average. A year ago, 15-year rates averaged 2.26%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.5% this week, with an average 0.3 point, rising from last week’s 4.41% average. A year ago, 5-year ARMs averaged 2.54%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

©National Association of REALTORS®
Reprinted with permission

Mortgage rates are dropping as concerns mount over a possible economic recession.

Mortgage rates are falling—at least for now—after posting rapid jumps in June. Over the last two weeks, the 30-year fixed-rate mortgage has dropped by one-half of a percentage point. Home buying is about 5% more affordable than a week ago, translating to about $100 less in monthly mortgage payments, economists at the National Association of REALTORS® wrote on the Economists’ Outlook blog.

Rates are dropping as concerns mount over a possible economic recession, says Sam Khater, Freddie Mac’s chief economist. “While the drop provides minor relief to buyers, the housing market will continue to normalize if home price growth materially slows due to the combination of low housing affordability and an expected economic slowdown,” Khater says.

Freddie Mac reports the following national averages with mortgage rates for the week ending July 7:

• 30-year fixed-rate mortgages: averaged 5.30%, with an average 0.8 point, dropping from last week’s 5.70% average. Last year at this time, 30-year rates averaged 2.90%.
• 15-year fixed-rate mortgages: averaged 4.45%, with an average 0.8 point, dropping from last week’s 4.83% average. A year ago, 15-year rates averaged 2.20%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.19%, with an average 0.4 point, falling from last week’s 4.50% average. A year ago, 5-year ARMs averaged 2.52%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

©National Association of REALTORS®
Reprinted with permission

With inflation reaching a new high in June, the Federal Reserve will likely take more aggressive action. And that could influence even higher mortgage rates, says NAR Chief Economist Lawrence Yun.

Inflation rose to a new 40-year high in June and is accelerating even faster than expected, according to data from the Bureau of Labor Statistics’ Consumer Price Index. Consumer prices jumped 9.1% last month and posted an annualized inflation rate of 17%, much higher than economists predicted. Consumers faced record-high gas prices and spiking grocery costs last month.

“The Fed may be forced to raise interest rates even more aggressively than planned—even with the rising possibility of a recession on the horizon,” says Lawrence Yun, chief economist for the National Association of REALTORS®. “The mortgage market had already factored in several additional rounds of the Fed’s rate hike but may have to adjust a bit higher based on today’s uncomfortable inflation rate.”

That could be a major blow to aspiring home buyers who have been nervously watching mortgage rates climb drastically over the last few weeks. The 30-year fixed-rate mortgage averaged 5.3% last week, up from 2.9% just a year earlier, according to Freddie Mac. Meanwhile, home prices have risen 15% over the past year. (Note: Home prices are not included in the latest inflation figures. Likewise, the 50% rise in monthly mortgage payments this year versus last year also is not reflected in the CPI, Yun notes.)

A new Forbes.com analysis shows that mortgage rates have contributed to higher monthly mortgage payments more than rising home prices. The publication’s analysis shows that in the past 12 months, the typical monthly payment has increased up to 57%. Higher mortgage rates alone accounted for $408 of the average $725 increase in payments, while higher home prices accounted for $239, the analysis notes. (The remaining balance came from higher mortgage rates that were applied to a higher principal.)

“The homeowners who locked in low interest rates the prior two years have fixed, non-rising monthly mortgage payments,” Yun says. That’s “a different story for renters. Rents rose by 6% from last year and are rising at a 10% annualized rate. Rents will continue to rise in the upcoming years.” The Federal Reserve’s next meeting is slated for the end of July. Many economists predict the Fed will tighten its monetary policy further to control inflation. That could lead to another 75- or 100-basis point increase in the Fed’s short-term benchmark rate. While the Fed’s benchmark rate does not directly impact mortgage rates, it does influence them. Yun said following the Fed’s last rate hike—its largest since 1994—that the buyer pool could shrink as mortgage rates increase.

©National Association of REALTORS®
Reprinted with permission

Borrowing costs tick up again as the Federal Reserve’s inflation policy has economists bracing for even higher rates in the future.

Mortgage rates are showing volatility as the economy slows and recession fears take center stage. The 30-year fixed-rate mortgage rose to an average of 5.51% this week, up from 5.3% last week, according to Freddie Mac.

Home buyers are facing rising costs across the spectrum. Inflation shot to a new 40-year high in June and is accelerating even faster than expected, according to Consumer Price Index data released Wednesday, raising the prospect of a recession. The CPI jumped 9.1% last month, leading to a spike in grocery costs, record-high gas prices, and escalating rents. To boot, monthly mortgage payments soared 51% higher year over year, according to data from the National Association of REALTORS®. The median price for an existing home rose 14.6% year over year in May.

“With the potential of a more aggressive rate hike from the Federal Reserve at the end of the month, mortgage rates will likely rise even further,” says Nadia Evangelou, NAR’s senior economist and director of forecasting. “However, even with this increase, mortgage rates will continue to be historically low—below 8%—in 2022.”

Each bump upward in mortgage rates is being felt hard by home buyers. “Mortgage rates are volatile as economic growth slows due to fiscal and monetary drags,” says Sam Khater, Freddie Mac’s chief economist. “With rates the highest in over a decade, home prices at escalated levels and inflation continuing to impact consumers, affordability remains the main obstacle to homeownership for many Americans.”

Freddie Mac reports the following national averages with mortgage rates for the week ending July 14:

• 30-year fixed-rate mortgages: averaged 5.51%, with an average 0.8 point, increasing from last week’s 5.30% average. Last year at this time, 30-year rates averaged 2.88%.
• 15-year fixed-rate mortgages: averaged 4.67%, with an average 0.8 point, also rising from last week’s 4.45% average. A year ago, 15-year rates averaged 2.22%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.35%, with an average 0.2 point, increasing from last week’s 4.19% average. A year ago, 5-year ARMs averaged 2.47%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront costs of obtaining a mortgage.

©National Association of REALTORS®
Reprinted with permission

The Federal Reserve is expected to raise its key benchmark rate this coming week. What impact could it have on mortgage rates?

Mortgage rates rose slightly this week ahead of the Federal Reserve’s highly anticipated meeting next Tuesday, when it is expected to increase its benchmark rate by up to a full percentage point. What impact could that have on mortgage rates ahead?

“Even though the upcoming rate hike will be more aggressive, it’s expected to have a smaller impact on mortgage rates,” Nadia Evangelou, senior economist and director of forecasting for the National Association of REALTORS®, writes at the association’s blog. “Data shows that mortgage rates have already priced in some of the effects of the upcoming Fed’s rate hikes.”

That would be welcome news to home buyers who are getting nervous about rapidly increasing borrowing costs. Rising mortgage rates are tamping down housing demand, as existing-home sales in June were down 14.2% from a year earlier, according to NAR data. The Census Bureau also reports that builders have slowed new-home construction as more buyers get priced out.

“The housing market remains sluggish as mortgage rates inch up for the second consecutive week,” says Sam Khater, Freddie Mac’s chief economist. “Consumer concerns about rising rates, inflation and a potential recession are manifesting in softening demand.”

Home affordability is worsening, with the costs of buying a home now about 80% more expensive than in June 2019 before the pandemic, Evangelou says. Nearly 25% of buyers who purchased their home in 2019 couldn’t buy at today’s higher prices and mortgage rates, she adds. The median price for an existing home climbed to a record high in June, reaching $416,000—up 13.4% compared to a year earlier, according to NAR data.

Freddie Mac reports the following national rates for the week ending July 21:

• 30-year fixed-rate mortgages: averaged 5.54%, with an average 0.8 point, increasing from last week’s 5.51% average. Last year at this time, 30-year rates averaged 2.78%.
• 15-year fixed-rate mortgages: averaged 4.75%, with an average 0.8 point, increasing from last week’s 4.67% average. A year ago, 15-year rates averaged 2.12%.
• 5-year hybrid adjustable-rate mortgages: averaged 4.31%, with an average 0.3 point, dropping from last week’s 4.35% average. A year ago, 5-year ARMs averaged 2.49%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

©National Association of REALTORS®
Reprinted with permission

The next downturn may be different than the last. Look to commercial real estate for clues about the direction of the economy.

The U.S. gross domestic product contracted in the first quarter by 1.5%. The stock market has been tumbling. Inflation is stubbornly high. The Federal Reserve plans to continue raising interest rates. Pending home sales have fallen for six straight months and are now trending slightly below 2019 levels. The economy, in short, is on the verge of a recession.

Yet, it will not be a straightforward recession. Despite hiring freezes at tech firms and recent job cuts among mortgage lenders as refinance business dries up, the bigger problem for the economy is not a lack of jobs but rather a shortage of workers. Statistically, there are two job openings for each unemployed person. That’s why wages are up an average of 5.5% from a year ago, to nearly $32 per hour nationwide. However, inflation is gobbling the increase up with an 8% rise in the cost of living.

A recession typically means bad news for commercial real estate. But this time, the condition of the commercial market may be an indicator about the direction of the overall economy. Demand for apartments and single-family rentals is booming because of consistent job gains and affordability challenges in the For Sale market. Low vacancy rates, though, have pushed up average rents significantly this year. Demand for warehouse space has surged as retailers look to avoid supply-chain disruptions. The retail sector is recovering, with more fitness gyms, nail salons, and restaurants popping up in the suburbs. Hotel bookings, air travel, and park attendance, are above pre-pandemic levels. Consumer spending in the GDP calculation was up a solid 3.1%, even after adjusting for inflation. Weak trade numbers—exports were down and imports were up—brought the fall in GDP. Homeowners, after all, have accumulated sizable housing wealth: $75,100 in the last two years and $155,400 over the past five years. The stock market is going through a painful correction, though the broad S&P 500 index is up by 70% from five years ago. That’s why total net household wealth has essentially doubled from 10 years ago.

The office market is another story. There’s no strong desire on the part of employees to return to their downtown offices. Google’s GPS tracker shows robust movement just about everywhere except in office locations during work hours. Some form of working from home will be a permanent feature of the post–COVID-19 economy. This is also the reason traffic jams are happening more often on weekends than on weekdays. Welcome to the new normal.

Housing Inventory Edges Up

Total housing inventory at the end of April 2022 amounted to 1.03 million units, up 10.8% from March but down 10.4% from one year ago. At the current sales pace, there was a 2.2-month supply, up from 1.9 months in March and down from 2.3 months in April 2021.

©National Association of REALTORS®
Reprinted with permission