The 30-year fixed-rate mortgage averaged 5.27% in the week ending May 5, up from 5.10% the week before, according to Freddie Mac. It is the highest since 2009 and well above the 2.96% average from this time last year.
“Mortgage rates resumed their climb this week as the 30-year fixed reached its highest point since 2009,” said Sam Khater, Freddie Mac’s chief economist. “While housing affordability and inflationary pressures pose challenges for potential buyers, house price growth will continue but is expected to decelerate in the coming months.”
Following the meeting, Fed chairman Jerome Powell said that more hikes are expected, including more 50 basis point increases. But Powell said the central bank is not considering any hikes larger than that.
“A 75-basis-point increase is not something the committee is actively considering,” Powell told reporters. “If inflation comes down, we’re not going to stop. We’re just going to go down to 25-basis-point increases.”
Mortgage rates tend to track 10-Year US Treasury bonds. But rates are indirectly impacted by the Fed’s actions on inflation. As investors see or anticipate rate hikes, they often sell government bonds, which sends yields higher and with it mortgage rates.
Since the beginning of this year, mortgage rates have climbed more than two percentage points, the fastest pace in decades.
“The financial conditions facing home shoppers have shifted in a big way,” said Danielle Hale, chief economist for Realtor.com following the Fed’s announcement.
She said the cost of financing a home with a 20% down payment has increased by nearly 50% from a year ago, “a surge which has caused many shoppers to rethink budgets and likely knocked some households out of the home purchase market for now.”
At the same time, she said, demand to buy a home is still strong.
“Home prices have continued to grow as high rents and a large number of young households looking for the certainty and relatively fixed costs of home ownership feel a strong sense of urgency to find a home and lock in a rate before mortgage rates and home prices climb again,” she said.
Looking ahead to the rest of the year, there is uncertainty in the housing market, Lawrence Yun, the National Association of Realtor’s chief economist said at the organization’s legislative meeting this week.
“Mortgages now compared to just a few months ago are costing more money for home buyers,” Yun said. “For a median-priced home, the price difference is $300 to $400 more per month, which is a hefty toll for a working family.”
He estimates inflation will remain elevated for the next several months and that the market will see further monetary policy tightening through a series of rate hikes.
But, he said, as rates rise home prices are expected to cool.