Mortgage Rates Just Hit Record High of 5% — Will It Cool the Market?

Mid adult investor showing young couple where to sign the contract for buying a house.
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Mortgage rates continue to push higher this month, hitting 5% for the first time in three-and-a-half years. Some fear the higher rates will further stall an already cooling U.S. housing market, though others suggest home sales could increase in coming weeks as house hunters scramble to buy homes before mortgage rates rise again.

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The average contract rate on a 30-year fixed-rate mortgage rose to 5.13% in the week ending April 8 from 4.90% a week earlier, Reuters reported. That’s its highest level since November 2018. The rate has risen more than 1.5 percentage points since the start of the year amid a move by the Federal Reserve to cool inflation through interest-rate hikes.

The average rate on a 30-year mortgage climbed to 5% from 4.72% last week, ABC News reported, citing Thursday data from Freddie Mac. Rates in recent months have been spiking at their fastest pace since 1994. If you want to know how fast, consider this: A year ago the 30-year rate stood at only 3.04%. The average rate on a 15-year, fixed-rate mortgage — a popular option for those refinancing their homes — climbed to 4.17% from 3.91% last week.

Meanwhile, average home prices are up about 15% over the past year and have risen as much as 30% in some of the hotter markets, partly due to limited inventory of new homes.

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“Aside from a few days in 2018, we haven’t seen rates this high persistently since around 2011. Mortgage rates are the real focus among a lot of people right now, and trying to understand what impact [that is] going to have on housing markets,” Benjamin Keys, a professor of Real Estate and Finance at the University of Pennsylvania’s Wharton School, said in a recent interview with the school’s business journal.

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In fact, the housing market has already shown signs of cooling. Pending home sales in February fell 4.1% compared to January, Fortune reported, which was the fourth straight month of declines. That figure came in well below the 1% gain some analysts had expected.

Record low inventories caused by supply-chain disruptions were a big part of the slowdown, though spiking mortgage rates and record high home prices also played a part.

Some industry watchers expect sales to keep falling.

“The housing market is cooling very rapidly, and sales are set to fall by 20 to 30% by mid-year,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, told Fortune. “The writing is on the wall, in big, sharp, clear letters.”

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But others have a more upbeat take, at least over the near term. They expect a large number of buyers to enter the market before the Fed’s next rate hike so they can lock in lower rates currently available.

And, as an article from the Wharton School noted, rents in many U.S. markets have risen faster than home prices — a trend that will push many Americans toward home ownership, where they can use fixed-rate mortgages to lock in their housing budgets over the long term.

Keys also pointed out that many Americans are financially ready to buy homes thanks to rising wages and higher personal savings during the COVID-19 pandemic.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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