Economic research

Mortgage rates continue to climb towards 5%

Freddie Mac Mortgage Rates – April 7, 2022

What happened to mortgage rates this week:

The Freddie Mac fixed rate for a 30-year loan rose for the fifth week in a row, jumping 5 basis points to 4.72%, following the surge in the 10-year Treasury, which crossed the threshold this week 2.6%, the highest level in four years. Investors are digesting remarks this week from a number of Federal Reserve chairs that echo concerns expressed by Chairman Powell that inflation is on an aggressive path that threatens to derail the economy by cutting spending of consumption. The Fed is using forward guidance to let markets know that the bank will take a much harder turn in its monetary tightening to stem what it implicitly recognizes as a case of runaway inflation. After spending most of 2021 downplaying inflationary concerns as “transient,” the Fed finds itself behind the eight ball, having to unwind an unprecedented platform of quantitative easing. For lenders and mortgage originators, the labor shortage resulting in strong job creation, combined with rising prices, is putting upward pressure on costs, driving higher rates. Ultimately, mortgage rates are on track to exceed 5%, a level not seen since February 2011, when the price of a typical home in the United States was just $166,000, less than half the price of a typical house today.

What does that mean:

For real estate markets, the sharp rise in mortgage rates over the last quarter signals a turning point. We entered 2022 on solid footing, with rising employment and wage growth driving demand for housing. The shortage of inventory pushed prices to record highs even before the start of the spring season. At current rates, buyers of a median-priced home are looking at monthly mortgage payments $460 higher than a year ago, a 38% increase from April 2021. The increased cost of financing a home exceeds the 8% annual rate of inflation, the 15% rise in house prices and the 17% rise in rents. For many American families, today’s mortgage rates make it impossible to afford a home this spring. We are approaching the tipping point at which market demand is expected to recede. The silver lining of the current affordability crisis is highlighted in Realtor.com’s new Seller Report, which shows that many homeowners plan to put their properties up for sale in the coming months. The increased supply would be good news for housing markets this year.


George RatiuGeorge Ratiu

George Ratiu