The 30-year fixed-rate mortgage averaged 5.81% in the week ending June 23, up from 5.78% the previous week, according to Freddie Mac.
This time last year, rates averaged 3.02%, and the last time rates were this high was in the winter of 2008.
“Fixed mortgage rates have risen by more than a full two percentage points since the beginning of the year,” Sam Khater, chief economist at Freddie Mac, said in a statement. “The combination of rising rates and high home prices is the likely driver of the recent declines in existing home sales. In reality, however, many potential buyers are still interested in purchasing a home, keeping competitive market but stabilizing in the last two years of white-hot activity.
Despite the jumps, mortgage rates remain well below all-time highs recorded over the past 40 years, notably the record average rate of 18.63% in October 1981.
Still, the sharpness of current mortgage rate increases combined with rising borrowing costs will ultimately make consumers more cautious, said Abbey Omodunbi, assistant vice president and senior economist at The PNC Financial Services Group.
“I think we’re likely to see more mortgage rate increases for the rest of the year,” Omodunbi said in an interview with CNN Business. “The Fed wants to see a weakening in real estate activity.”
The Federal Reserve does not directly set the interest rates that borrowers pay on mortgages, but its actions influence them. Mortgage rates tend to track 10-year US Treasuries. But rates are indirectly affected by the Fed’s actions on inflation. When investors see or anticipate rate increases, they often sell government bonds, driving up yields and, with them, mortgage rates.
Home prices have risen over the past two years in part due to record mortgage rates, pandemic-related migration patterns, the influence of investment firms buying residential properties, and the purchase of mortgage bonds by the Federal Reserve.
Rents and home prices continue to rise at double-digit rates in many areas.
A year ago, a buyer who put a 20% down payment on a $390,000 median priced home and financed the rest with a 30-year fixed-rate mortgage at an average interest rate of 3.02% had a monthly mortgage payment $1,673, according to numbers from Freddie Mac.
At the current rate of 5.81%, the monthly mortgage payment on that same house would be $2,187, a difference of $514.
Housing already appears to be transitioning to a “post-pandemic new normal,” said George Ratiu, manager of economic research at Realtor.com. Rents hit a record for the 15th month in a row, but the pace of growth is slowing, he said, adding that home price gains are also slowing.
“Market prices will continue to adjust to a smaller pool of qualified buyers and higher financing costs,” it said in a statement. “The move from an overheated real estate market to a more sustainable one will take some time. The upside is that we should eventually see a healthier environment with more choice and better value for many buyers.”