The 30-year fixed-rate mortgage averaged 5.11% this week, continuing its rapid rise, Freddie Mac reports. The higher borrowing costs are forcing home buyers to expand their budgets.

With higher rates and home prices, house hunters need to earn about $25,000 extra if they want to buy the typical home now compared to a year earlier, Nadia Evangelou, senior economist and director of forecasting at the National Association of REALTORS®, writes for the association’s blog. Existing-home sales are dropping as a result.

Rising Treasury yields are putting pressure on mortgage rates, says Sam Khater, Freddie Mac’s chief economist. “While springtime is typically the busiest homebuying season, the upswing in rates has caused some volatility in demand,” Khater says. “It continues to be a seller’s market, but buyers who remain interested in purchasing a home may find that competition has moderately softened.”

Freddie Mac reports the following national averages with mortgage rates for the week ending April 21:

• 30-year fixed-rate mortgages: averaged 5.11%, with an average 0.8 points, rising from last week’s 5%. Last year at this time, 30-year rates averaged 2.97%.
• 15-year fixed-rate mortgages: averaged 4.38%, with an average 0.8 points, increasing from last week’s 4.17% average. A year ago, 15-year rates averaged 2.29%.
• 5-year hybrid adjustable-rate mortgages: averaged 3.75%, with an average 0.3 points, increasing from last week’s 3.69% average. A year ago, 5-year ARMs averaged 2.83%.

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

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High home prices and mortgage rates are serving as a wake-up call to potential home buyers this spring that their budgets just aren’t going to go as far as they would have a year ago. In the first quarter of this year, 81% percent of consumers said they could afford less than half the homes for-sale in their markets. That marks the highest share since before the pandemic, the National Association of Home Builders reports.

Mortgage rates that have risen above 5% alone are pressing on more budgets. Since the beginning of the year, mortgage rates have jumped by 1.8 percentage points, which has added about $400 to the average monthly mortgage payment for a median-priced home, according to NAR data.

What’s more, with inflation at a 40-year high, the average consumer is spending $500 more a month on living expenses than a year ago.

House hunters would be smart to search for a home that is about $40,000 cheaper than they would have a year ago as a result of the rising costs, according to a new analysis by NAR.

Home prices continue to rise across the country so that’s not easy to do. NAR reported in its latest existing-home sales report that the median home price was $375,300 in March, up 15% compared to a year ago.

Housing affordability expectations have been dropping since the final quarter of 2020 across the country, according to NAHB’s data. The share of buyers who are only able to afford less than half the homes for sale in their markets increased in the Northeast (51% to 77%); Midwest (74% to 83%); South (68% to 79%); and West (61% to 78%).

Home searches are getting tougher, and consumers are realizing that. Only 17% of buyers say they expect their home search to get easier in the months ahead, the lowest level since 2018, according to NAHB. “Buyers’ worsening perceptions of housing availability reflect the record-levels of housing inventory available in the market,” Rose Quint, NAHB’s assistant vice president for survey research, writes for NAHB’s Eye on Housing blog.

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Average closing costs for a single-family home rose by 13.4% in 2021, according to a new analysis by CoreLogic, a real estate research firm. That equates to about $6,905 including transfer taxes and $3,860 when transfer taxes are excluded.

Home buyers also are facing higher borrowing costs from mortgage rates and higher home prices. The 30-year fixed-rate mortgage averaged 5.11% last week, according to Freddie Mac. Since the beginning of the year, mortgage rates have jumped by 1.8 percentage points, which has added about $400 to the average monthly mortgage payment for a median-priced home, according to the National Association of REALTORS®.

What’s more, the average U.S. home price rose by more than $50,000 last year, CoreLogic reports.

“As the mortgage industry comes off two years of record-low interest rates and red-hot consumer demand, lenders are now pivoting to address increasing headwinds from higher loan origination costs and lower origination volumes,” says Bob Jennings, an executive at CoreLogic Underwriting Solutions. “As the market tightens in 2022, it will be interesting to see how lenders and borrowers respond and how these key metrics move.”

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The share of mortgage applications with adjustable-rate mortgages doubled last week when compared to three months ago, the Mortgage Bankers Association reported Wednesday. ARMs, which start at one rate and then fluctuate after a set period, comprised more than 9% of loans and 17% of the dollar volume.

ARMs were blamed for contributing to the housing bubble of the mid-2000s, offering teaser low rates to borrowers that, once they reset, led to some homeowners no longer being able to afford their mortgage. Lenders say they’re stricter about who qualifies for ARMs nowadays.

The latest lower introductory rates from ARMs may grow more enticing as home buyers watch other rates quickly climb. The average contract interest rate for the 30-year fixed-rate mortgage with conforming loan balances ($647,200 or less) rose to 5.37% last week. That is up from 3.17% just a year ago, the Mortgage Bankers Association reports. The average rate on a 5-year ARM, however, was 4.28% last week.

The doubled share of ARM applications compared to three months ago coincides with the 1.5 percentage point increase in the 30-year fixed rate, says Joel Kan, an MBA economist.

“As buyers continue to navigate today’s housing market and rising interest rates, many are considering adjustable-rate mortgages,” says Glenn Brunker, president of Ally Home. “ARMs can help buyers save money over a fixed rate because they often offer a lower monthly mortgage payment for the initial period of the loan, typically 5, 7, or 10 years.”

When determining whether to choose a fixed or ARM mortgage, borrowers likely will want to make two main considerations, Brunker says: How long they’ll be in the home and their personal finances and affordability. “The interest rate on a fixed-rate mortgage is locked in for the life of the loan—whether it’s 15, 20, or 30 years,” he says. “So if a buyer is planning to stay in their home for an extended period of time, the peace of mind that comes with a fixed-rate mortgage is beneficial.” Also, he notes that ARM loans may increase if interest rates rise further when they do reach that adjustable reset period. But there is some protection offered on ARMs based on periodic and lifetime caps on interest rate increases, which borrowers can look into before they commit.

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The 30-year fixed-rate mortgage barely budged this week, but it’s still stressing home shoppers feeling concern about being priced out. The 30-year fixed-rate mortgage averaged 5.10%, down slightly from 5.11% last week, Freddie Mac reports.

But it is one week before the Federal Reserve is expected to raise interest rates further, Nadia Evangelou, National Association of REALTORS® senior economist and director of forecasting, says on the association’s blog. The Fed’s key rate does not have a direct impact on mortgage rates but it does often influence them.

Borrowers may be getting nervous about how high rates could go. Higher rates already are forcing them to increase their budgets. Current buyers need to spend about $25,000 more to buy a comparable home this year than a year ago, Evangelou says.

“The combination of swift home price growth and the fastest mortgage rate increase in over 40 years is finally affecting purchase demand,” says Sam Khater, Freddie Mac’s chief economist. “Home buyers navigating the current environment are coping in a variety of ways, including switching to adjustable-rate mortgages, moving away from expensive coastal cities, and looking to more affordable suburbs. We expect the decline in demand to soften home price growth to a more sustainable pace later this year.

NAR has predicted a 10% drop in home sales for 2022.

Still, while panic continues over higher mortgages, economists note that rates remain lower than historical averages. In 2002, the average rate on a 30-year fixed-rate mortgage was about 7%, which is much higher than this week’s average of 5.10%.

Freddie Mac reports the following national averages with mortgage rates for the week ending April 28:

• 30-year fixed-rate mortgages: averaged 5.10%, with an average 0.8 point, falling from last week’s 5.11% average. Last year at this time, 30-year rates averaged 2.98%.
• 15-year fixed-rate mortgages: averaged 4.40%, with an average 0.9 point, increasing from last week’s 4.38% average. A year ago, 15-year rates averaged 2.31%.
• 5-year hybrid adjustable-rate mortgages: averaged 3.78%, with an average 0.3 point, increasing from last week’s 3.75% average. A year ago, 5-year ARMs averaged 2.64%.

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

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Reprinted with permission

There’s reason talk of sticker shock has grown increasingly common in real estate: Home prices and mortgage rates have significantly increased home buyers’ costs in just one year.

Mortgage rates have risen at the fastest pace in four decades. The 30-year fixed-rate mortgage averaged 5.10% this week, Freddie Mac reports. A year ago, rates averaged below 3%.

Home prices are escalating as well. The median existing-home price for all housing types in March was $373,300, up 15% compared to a year earlier, according to National Association of REALTORS® data.

The combination of higher rates and home prices has made monthly payments quickly climb. Home buyers of a median-price home are now facing a monthly mortgage payment that is nearly 50% higher than a year ago, George Ratiu, manager of economic research at realtor.com®, told MarketWatch. The impact is adding an extra $580 to buyers’ monthly expenses.

“It is not surprising that many are stepping back from the market, hoping that conditions will improve,” Ratiu says.

Many buyers “were already constrained by low inventories, which have been driving prices higher,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a recent research note, as quoted by MarketWatch. “Sustained increases in mortgage rates will be an additional headwind for home sales going forward.”

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