House hunters are watching mortgage rates closely. After all, every increase could have an impact on affordability, particularly given escalating home prices.

Nearly half—47%—of home buyers recently surveyed say they would feel more pressure to buy a home if mortgage rates passed 3.5%, according to a new consumer survey conducted by Redfin.

Mortgage rates are largely forecast to continue to rise over the coming months. Last week, the 30-year fixed-rate mortgage rose to its highest average since May 2020, averaging 3.22%, Freddie Mac reports. The National Association of REALTORS® forecasts that mortgage rates will average 3.7% by the end of this year.

Buyers who were surveyed say that increases in mortgage rates would also have an impact on the type of home they decide to purchase. Twenty-nine percent of buyers say that if mortgage rates increase above 3.5%, they will change their target areas to buy a home and seek a smaller one.

Only 7% of the 1,500 home buyers surveyed say they wouldn’t change their plans at all if mortgage rates rise above 3.5%, the Redfin survey shows. Only 2% would cancel their plans to purchase a home altogether if rates increase past that amount.

“Mortgage rates increasing will make homebuying less affordable,” says Daryl Fairweather, Redfin’s chief economist. “Over time, that will put the brakes on demand and put an end to double-digit annual price growth. But in the short term, this increase will light a fire under home buyers and make for an extremely competitive January.”

National Association of REALTORS®
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he housing market doesn’t appear to be following its typical seasonal slowdown this winter. Home buyers appeared in a rush last week, with economists crediting rising mortgage rates.

Mortgage rates moved to their highest level in more than a year, the Mortgage Bankers Association reports. Buyers who are already facing higher home prices are watching mortgage rates closely as they affect what shoppers can afford.

Mortgage purchase loan applications increased 2% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Purchase applications, however, are 17% lower than the same week a year ago, but real estate pros say that is primarily due to low inventories of homes for sale. They reported to CNBC anecdotally higher-than-normal activity in early January from home shoppers.

The MBA reports that the average contract interest rate for a 30-year fixed-rate mortgage for conforming loan balances rose to 3.52%, up from 3.33% the previous week. That marks the highest contract rate since March 2020.

“Mortgage rates increased significantly across all loan types last week as the Federal Reserve’s signaling of tighter policy ahead pushed U.S. Treasury yields higher,” says Joel Kan, an MBA economist. “The housing market started 2022 on a strong note. Both conventional and government purchase applications showed increases, with FHA purchase applications increasing almost 9%, and VA applications increasing more than 5%.”

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Inflation continues to press on mortgage rates. The 30-year fixed-rate mortgage averaged 3.45% this week, up from last week’s 3.22% average, Freddie Mac reports.

“Mortgage rates rose across all mortgage loan types, with the 30-year fixed-rate mortgage increasing by almost a quarter of a percent from last week,” says Sam Khater, Freddie Mac’s chief economist. “This was driven by the prospect of a faster than expected tightening of monetary policy in response to continued inflation exacerbated by uncertainty in labor and supply chains. The rise in mortgage rates so far this year has not yet affected purchase demand, but given the fast pace of home price growth, it will likely dampen demand in the near future.”

Despite rising mortgage rates, owning a home remains more affordable than renting, the National Association of REALTORS® reports. The monthly mortgage for owning a median-priced home is $1,260 compared to the average rent of $1,540, NAR notes on its Economists’ Outlook blog.

Freddie Mac reports the following national averages with mortgage rates for the week ending Jan. 13:

• 30-year fixed-rate mortgages: averaged 3.45%, with an average 0.7 points, rising from last week’s 3.22% average. Last year at this time, 30-year rates averaged 2.79%.
• 15-year fixed-rate mortgages: averaged 2.62, with an average 0.7 points, increasing from last week’s 2.43% average. A year ago, 15-year rates averaged 2.23%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.57%, with an average 0.3 points, rising from last week’s 2.41% average. A year ago, 5-year ARMs averaged 3.12%.

Freddie Mac reports average points along with commitment rates to better reflect the total upfront cost of obtaining the mortgage.

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Mortgage credit availability loosened in December, even as house hunters continue to face higher prices that are hampering affordability, according to the Mortgage Bankers Association.

MBA’s Mortgage Credit Availability Index posted its highest reading since May 2021. However, credit availability is still 30% below pre-pandemic levels.

“Credit supply increased in December, with growth across both conventional and government segments of the market,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a news release. “December’s growth was driven by more ARM and lower credit score loan programs, which was likely due to a combination of the rising rate environment and affordability challenges. Lenders expanded offerings to qualified borrowers who were the most impacted by these market conditions. Additionally, there was an increase in government streamline refinance programs to aid borrowers still looking to refinance before rates rise even more.”

The MBA report also notes a 34% increase in jumbo credit availability.

Home prices continue to rise. The median existing-home price for all housing types in November was $353,900, up 13.9% compared to a year earlier, the National Association of REALTORS® reports.

As home prices press higher, so is the amount that home buyers are borrowing to pay for a house. The average amount borrowed to finance a home purchase climbed to $414,115 in November, according to MBA.

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The average dollar amount of a mortgage purchase application hit a record of $418,500 as higher home prices force buyers to borrow more, the Mortgage Bankers Association reported this week.

“The continued rise in purchase loan application sizes is driven by high home price appreciation and the lack of housing inventory on the market—especially for entry-level homes,” says Joel Kan, vice president of economic and industry forecasters for the MBA. “The slower growth in government purchase activity [like in VA or FHA loans] is also contributing to the larger loan balances and suggests that prospective first-time buyers are struggling to find homes to buy in their price range.”

Home prices have been rising rapidly over the past year by double-digit percentages. The median existing-home price for all housing types in December was $358,000, up 15.8% compared to a year earlier ($309,200). Last month, every major region of the U.S. posted price gains, led by the South (up 20% compared to a year ago), according to the National Association of REALTORS®’ latest home sales report.

Down payments have also gotten larger. Buyers in the country’s 50 largest metros brought an average $46,283 to closing, according to a new study from LendingTree. View a breakdown of average down payments.

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Mortgage rates are on the rise in the new year, just like economists predicted. The 30-year fixed-rate mortgage, which is up 45 basis points in less than a month, averaged 3.56% this week compared to 3.11% in the last week of 2021.

“Mortgage rates moved up again as the 10-year U.S. Treasury yield rose and financial markets adjusted to anticipated changes in monetary policy that will combat inflation,” says Sam Khater, Freddie Mac’s chief economist. “As a result of higher mortgage rates, purchase demand has modestly waned in advance of the spring homebuying season. However, supply remains near historically tight levels and home prices remain high, keeping the market competitive.”

Freddie Mac reports the following national averages with mortgage rates for the week ending Jan. 20:

• 30-year fixed-rate mortgages: averaged 3.56%, with an average 0.7 point increase from last week’s 3.45% average. Last year at this time, 30-year rates averaged 2.77%.
• 15-year fixed-rate mortgages: averaged 2.79%, with an average 0.6 point increase, up from last week’s 2.62% average. A year ago, 15-year rates averaged 2.21%.
• 5-year hybrid adjustable-rate mortgages: averaged 2.60%, with an average 0.3 point increase, rising from last week’s 2.57% average. A year ago, 5-year ARMs averaged 2.80%.

Freddie Mac reports national rates along with average points to better reflect the total upfront cost of obtaining a mortgage.

National Association of REALTORS®
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