- Mortgage rates continued their steady rise this week, with the 30-year fixed rate average hitting 5.28%.
- Inflation is a major driver, with markets also responding to the prospect of more aggressive action by the Federal Reserve to calm rising consumer prices.
- Rising rates, combined with high home prices, are making life difficult for homebuyers, particularly those in the market for their first home, experts say.
- Higher rates mean it’s more important to shop around to get a deal when looking for a mortgage. Buyers should also consider being patient as they face a tough market, experts say.
- The big run-up of mortgage rates has cut significantly into demand for refinancing, but it could lead to more interest in home equity loans and lines of credit.
Buying a house continues to get more expensive quickly, with mortgage rates crossing 5.25% and home prices continuing to rise despite slowing sales.
The average 30-year fixed rate was up 16 basis points to 5.28%. That’s nearly two percentage points higher than they were at the start of the year, and it’s only April. Rates have not been this high in more than a decade.
Couple that with the continued run-up of home prices. The National Association of Realtors reported this week that the median sales price of an existing home was $375,300 in March, up 15% from a year earlier. This despite sales dropping 2.7% from February and 4.5% from a year earlier.
“Given the rising borrowing costs and prices, housing is especially difficult for entry-level buyers,” says Jeffrey Roach, chief economist at LPL Financial, a national broker-dealer.
The rapid rise of mortgage rates will likely ease demand for homes as more buyers find themselves unable to afford houses at current prices, Roach says. That trend likely won’t lead to lower prices, however, as the number of available homes is low. NAR said the inventory of unsold existing homes was 950,000 in March, just a two-month supply. “Given low inventories, home prices will likely stay elevated even though demand has softened,” Roach says.
About the Latest Mortgage Rates
Except where otherwise noted, mortgage rate data in this story is based on mortgage rate information provided by national lenders to Bankrate.com, which like NextAdvisor is owned by Red Ventures.
What’s Causing Changes in Mortgage Rates
Credit markets are responding to expectations that the Federal Reserve will take more aggressive action to curb persistently high inflation, Roach says. The consumer price index was up 8.5% year-over-year in March, the Bureau of Labor Statistics reported, and the Fed has already started raising its benchmark short-term interest rate, with more rate increases expected to bring inflation down. Beyond that interest rate, the Fed is also going from buying bonds to support the economy to selling them to tamp down inflation, Roach says, with rates rising in response.
“It’s not surprising that the mortgage rates are hitting where they are,” Roach says. “What can be a little bit unnerving is the speed at which they’ve reverted back to levels back in 2009-2010, when rates were above 5%.”
Experts Predict: What’s Next for Mortgage Rates in April?
The upward trend in mortgage rates was expected, experts told us. A lot of different economic factors are driving rapid changes in rates. “In my 30 years in the business, the landscape is reflecting a lot more uncertainty than would be evident in a normal market,” Mike Schenk, chief economist for the Credit Union National Association, told us. “I think consumers should react with care and with caution.”
After two years of low rates, the increase is, in a sense, a return to normalcy, Jodi Hall, president of Nationwide Mortgage Bankers, a national lender, told us. “We almost look at it as the market correcting itself,” she said.
What Other Mortgage Industry Data Show
The average 30-year fixed rate moved above 5% in the weekly survey by Freddie Mac, hitting 5.11%. That’s the highest since 2010.
Freddie Mac is a government-sponsored enterprise that buys mortgages on the secondary market, and its survey’s methodology and the time in which it collects data differ from others, such as the Bankrate survey referenced in this article. While the mortgage rate averages vary between the two surveys, they follow similar trends over time.
How Today’s Rates Compare to Historical Levels
Here’s a look at how current mortgage rates compare to the last 22 years.
Mortgage rates have gone up quite a bit in the past few months, and it can be jarring to see what they are now compared to where they’ve been the past two years and even most of the last decade. But if you look back a bit further, before the Great Recession, 5% rates were favorable.
Home Prices are Also Increasing
The surge in home prices is driven largely by the mismatch of supply and demand in the housing market. On the supply side, issues with labor, materials, and lots have kept builders from being able to finish as many houses as needed. In terms of demand, generational changes – millennials reaching their prime homebuying years – and the sudden ubiquity of remote and hybrid work have brought more buyers on the market.
Higher mortgage rates will push some buyers out of the housing market, reducing some of the competition and slowing sales, Roach says. “Things will slow but it’s certainly not going to collapse and it’s nowhere near the situation just prior to the financial crisis,” he says.
What Rising Mortgage Rates Mean for Homebuyers
When you’re looking for a mortgage, be sure to shop around. Different lenders will offer different rates, and with the trends moving upward so fast, there might be big differences in what two lenders will give you. “I think the best advice for a mortgage shopper if you’re thinking about low rates is you need to shop around and you need to look at a lot of different places,” Skylar Olsen, principal economist at Tomo, a digital real estate and mortgage company, told us.
Homebuyers facing the double whammy of higher rates and high prices might want to be patient, Roach says. While rates will probably not drop back below 3% again in the near term, they might drop a bit later in the year as markets get a better idea of what the Federal Reserve will do to tame inflation. “Perhaps potential buyers can wait for the offseason time and that’s a decent chance for more reasonable rates and less frothy home prices,” he says.
What Rising Mortgage Rates Mean for Existing Homeowners
With rates at their highest point since 2010, fewer homeowners are in a position to refinance just to save money by getting a lower rate. Homeowners who have seen their equity increase significantly in the past few years may be interested in a cash-out refinance to get money for other purposes, such as to pay for major home improvements or to consolidate higher-interest debt like credit cards. “Typically you see refinancing activity happening when rates are falling,” Roach says.
Higher mortgage rates will likely lead to more homeowners looking into home equity loans or home equity lines of credit (HELOCs) as alternative ways to tap into equity without raising the interest rate on the rest of the mortgage, Roach says. “I think home equity loans are going to be the hot topic now,” he says.
Whether you are looking to refinance or purchase, you can compare lender offers here using this Home Loan Comparison Calculator. You can enter in the loan amount, rate, fees, and term for each offer and see a true side-by-side comparison.
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