Mortgage Rates Are Rising Faster Than Expected, Reaching Highest Level Since 2011. Experts Say Inflation Is to Blame

A photo to accompany a story about the latest mortgage rates Micah Green/Bloomberg via Getty Images
"Sold" signs in the windows of new townhomes on July 6, 2021 in a Sumter, South Carolina subdivision. With rising mortgage rates and home prices, homebuyers are feeling the pressure. But experts say it's still a good time to buy, but shop and compare lenders.
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The average 30-year fixed mortgage rate crossed the 5% threshold for the first time in years as fast-rising mortgage rates continue to complicate financial matters for homebuyers.

After spending the better part of two years below 4%, rates have quickly returned to levels last seen in 2018 as inflation, action by the Federal Reserve, and financial uncertainty caused by Russia’s invasion of Ukraine, created significant volatility in interest rates.

The average was 5.12% this week, an increase of 17 basis points from last week’s average.

“Mortgage rates hit the highest level in more than 11 years this week,” says Greg McBride, chief financial analyst at Bankrate. “Other than a brief eight-week span in late 2018, mortgage rates have been below the 5% mark since 2011. We’ve never seen a run-up in mortgage rates that has been this big, this fast. There have been bigger moves in mortgage rates in the past, but they took significantly longer to unfold.”

In February, rates topped 4% for the first time since the pandemic started, and they have risen another percentage point in two months. 

Rates were expected to go up, says Brett Bivenour, chief technology officer at Nationwide Mortgage Bankers, a national lender. “I don’t think it’s a surprise. I think the speed at which rates have risen is what’s causing the concern more than anything.”

The surge in rates, combined with the concurrent dramatic increase in home prices, means it’s getting more difficult for buyers to afford a home, Bivenour says. “Particularly for borrowers that were previously preapproved or have been shopping for some time, some of them have been pushed out or they’re seeing buying power diminish as rates rise like that,” he 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 Making Mortgage Rates Go Up?

A big cause is inflation, experts say, and that has yet to ease. In March, the consumer price index was up 8.5% year-over-year, the Bureau of Labor Statistics reported this week. That’s the highest figure since December 1981. 

To address high inflation, the Federal Reserve has started raising its benchmark short-term interest rate from the near-zero levels it has been in the past few years. Mortgage rates aren’t directly connected to that rate but they are correlated, experts say. The Fed is expected to keep raising rates throughout the year. 

Since March, financial markets have also been keeping a close eye on Russia’s invasion of Ukraine, which has caused concerns about escalation and inflation. 

What Other Mortgage Industry Data Show 

The average 30-year fixed rate hit exactly 5% in a survey by Freddie Mac. It’s the first time the Freddie Mac average has been 5% in more than a decade. 

Freddie Mac is a government-sponsored entity that buys mortgages on the secondary market, and while 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, they show similar trends over time.

Historical Mortgage Rates: Here’s How Today’s Rate Compare 

Here’s a visual look at how current mortgage rates compare to the last 22 years.

Mortgage rates breaching 5% is a big deal, as they haven’t been at this level in more than a decade. If you go back to before the Great Recession, however, rates well above 5% were commonplace. “Overall, 5%, if you zoom out historically, is still very low in terms of mortgage rates,” Bivenour says.

Experts Predict What Rates Will Do In April

Mortgage rates are likely to keep heading upward this month, experts tell us. Patrick Stone, founder and executive chairman of WFG National Title Insurance Company, told us inflation will continue to affect rates as it stays high. “We’re going to have inflation a little bit longer and rates are going to go up for a little bit longer.”

Rates have been expected to rise, Mike Schenk, chief economist at the Credit Union National Association, told us. “We’re coming out of an environment where rates generally were close to all-time lows. I think the long-term trend is going to be up.”

Home Prices Are Also Rising

Adding to the struggles of homebuyers: This run-up in mortgage rates comes as homes are selling for a lot more than they were a few years ago. The median U.S. home listing price broke $400,000 for the first time in March and was up 26.5% over two years earlier, per data from Realtor.com. The problem with housing prices? Supply and demand, experts say. “It’s just that there aren’t enough homes for everybody who wants one,” Daryl Fairweather, chief economist at Redfin, told us.

The financial crunch on buyers means you might need to be creative during your home search, looking at places that might not be your first choice and taking your time, experts say. “I think you want to be strategic and you want to be patient,” Robert Dietz, chief economist at the National Association of Home Builders, told us. 

How Homebuyers Can Deal With Rising Mortgage Rates   

It’s more important than ever to shop around for a mortgage. Bivenour says getting quotes from different lenders and taking advantage of online mortgage programs can make it easier to get through the early stages of getting approved for a loan and better prepare you for hitting the homebuying market. “Working with a lender that is able to provide the expertise and experience to help navigate it is probably the first and maybe most obvious recommendation,” he says.

Another way to compete amid higher home prices is to get preapproved, Bivenour says. That can help assure buyers your offer will make it to closing without hurdles on the lending side. “Getting something like an underwritten preapproval makes you a little more competitive in some of these tight real estate markets where cash offers are frequently seen,” he says.

Experts tell us an important thing to remember when buying a house is that the mortgage rate isn’t the most important thing – that’s getting a payment you can afford at a time when you’re ready to get a house. “If you are thinking about buying a house, make a lifestyle decision,” Tendayi Kapfidze, chief economist at U.S. Bank, told us

Is Refinancing Still a Good Idea?

Not as many homeowners are in a place to refinance just to save money merely by getting a new interest rate that is lower. Black Knight, a mortgage data and technology firm, projected recently that roughly 4 million homeowners could get a rate lower than their current one by 0.75% or more, with only 2 million meeting eligibility criteria they consider for “high-quality refinance candidates.”

While refinancing to save money may be less likely, there are other reasons to do so, including to tap into your home’s equity with a cash-out refinance. That money can then be used for other purposes, such as to pay down higher-interest debt. Just like mortgage rates, credit card interest rates are on the rise, but mortgage rates are far lower. “It’s very important that people are aware that their credit card rate is going to go up,” Beverly Harzog, a credit card expert and consumer finance analyst for U.S. News & World Report, told us. “And if you do have credit card debt, it’s time to take steps to get rid of that.”

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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