Mortgage rates on fixed-rate, 30-year loans jumped above 5% this week. That pushes the cost of buying a home higher and leaves many people unable to afford it.
Steven Senne / AP
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Steven Senne / AP
Mortgage rates on fixed-rate, 30-year loans jumped above 5% this week. That pushes the cost of buying a home higher and leaves many people unable to afford it.
Steven Senne / AP
Here’s the not-so-fun fact: The monthly mortgage payment required to buy a typical home in the US is now a staggering 55% higher than it was at the beginning of last year. That’s due to a sharp increase in mortgage rates in recent weeks along with a price increase in a hot housing market.
“It’s crazy,” said Nick Cacciatore, who is looking to buy a home in Tampa, Fla.
Back when Cacciatore looked last summer, mortgage rates were below 3%. This week they were increased by more than 5%. While that may not sound like much, it makes a huge difference when you buy something as expensive as a house. And Cacciatore is looking for homes in the $600,000 price range.
“It added $700 a month in monthly payments,” he said. “I mean, a ridiculous amount just from interest.”
Cacciatore is a lawyer who started his family practice. His fiancé is a veterinarian. So they have good jobs and some savings.
But in this overheated housing market, home prices are constantly being outbid. Now with higher mortgage rates, they are looking for smaller, less expensive apartments.
Some first-time buyers are giving up altogether.
“It took them off the market quite a bit,” says Gabriela Raimander, a real estate agent in St.Petersburg, Fla. “She told me with tears in her eyes,” Raimander said. “I can’t compete in this market. My dream of owning a home will have to be shelved or shelved entirely.” “
Gabriela Raimander, a real estate agent in St.Petersburg, Fla., says most first-time homebuyers she works with give up. The combined impact of higher prices and mortgage rates is keeping many people from being able to afford home ownership.
Gabriela Raimander
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Gabriela Raimander
Gabriela Raimander, a real estate agent in St.Petersburg, Fla., says most first-time homebuyers she works with give up. The combined impact of higher prices and mortgage rates is keeping many people from being able to afford home ownership.
Gabriela Raimander
Here’s how the typical home search numbers look in the US: The median price for a home has grown from $309,200 in December 2020 to $357,300.
Over the same period, interest rates rose from 2.67% to 5.08% this week. With a 10% down payment, that pushed the monthly payment up from $1,124 to $1,742 — a whopping 55% increase, with most coming from rising mortgage rates.
Online searches for “homes for sale” have dropped
The phenomenon of price shock has affected home buyers.
According to Daryl Fairweather, chief economist at real estate brokerage Redfin, searches for homes for sale are down 10% year over year. The number of people coming to see the house also decreased slightly.
“So we’re seeing some very early signs that buyers are reacting to these higher mortgage rates,” Fairweather said.
Higher mortgage rates could finally cool the hot housing market
It might not be a bad thing. Finally, the overheated housing market could cool down, ending the frenzied buying and bidding wars.
Falling demand could give home builders time to catch up. A record low house supply is a big reason why prices have gone up so much during the COVID-19 pandemic.
“I think the house price increase will cool down quite a bit,” said Fairweather. “We’re going to have a pretty steady year of house price growth in real terms.”
Of course, that’s exactly what the Federal Reserve is trying to do for the broader economy by raising interest rates. The Fed wants to cool down prices and inflation by making it more expensive to borrow money.
However, it is not yet clear how much higher mortgage rates will be. Unlike interest rates on credit cards or other types of loans, mortgage rates change early and suddenly in anticipation of what the market expects, such as what the Federal Reserve will do with interest rates. and its bond purchases next year. So mortgages may go up around this time, or they may continue to grow.
In the Seattle area, Alex Bacon doesn’t wait around to find out.
“We are really, really excited to be moving,” she said. Bacon and her husband are about to sell their very small start-up house they bought 5 years ago. It’s all they can afford, and it’s right down the street from the Seattle airport.
Alex Bacon and her husband, Eli Leslie, at their current home, very close to the Seattle airport. She said: “I had just come to the end of one of the runways, so the air just smelled of jet fuel. The couple are struggling to find a home to buy before mortgage rates go much higher.
Alex Bacon
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Alex Bacon
Alex Bacon and her husband, Eli Leslie, at their current home, very close to the Seattle airport. She said: “I had just come to the end of one of the runways, so the air just smelled of jet fuel. The couple are struggling to find a home to buy before mortgage rates go much higher.
Alex Bacon
She said: “I had just come to the end of one of the runways, so the air just smelled of jet fuel. “I can’t invite people over for a barbecue because every time you talk, you have to pause for 30 seconds in the middle of your thoughts,” she said, as a 747 rumbled through her backyard.
After the pandemic, Bacon realized she could work remotely. She is the project manager of a medical technology company. So the couple’s plan ended up being to move two hours north to a smaller, more affordable town and buy a bigger house that wasn’t next to the airport.
But with rates going up, they’re speeding up. They’re packing up and moving out as soon as they can buy the house.
The couple wanted to sell their current home and move two hours north, up near the border with Canada. The plan is to work remotely and maybe buy a bigger house, not close to the airport and have space for a home office.
Alex Bacon
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Alex Bacon
The couple wanted to sell their current home and move two hours north, up near the border with Canada. The plan is to work remotely and maybe buy a bigger house, not close to the airport and with space for a home office.
Alex Bacon
“We’re starting to see rates around 5%, and I’m just afraid that if they get too much higher, we won’t be able to buy the house we want to be on,” she said.
Their current home has increased a lot in value over the past few years, even the plane.
That would be the case for those who already own a home. They’re in much better shape than first-time homebuyers, because when they sell their home, they’ll likely have a nice amount of money to pay for a new place to live.
