Rising home prices have made it difficult to buy a house almost since the Covid pandemic began in March 2020. Home prices soared 18.8% in 2021, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index.
In addition to strong demand, a lack of inventory has boosted home prices amid local-government building restrictions. At February’s sales rate, it would take a near-record low 1.7 months to clear off the current inventory of existing homes, according to the National Association of Realtors.
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Now, in addition to rising prices, home buyers are confronted with surging mortgage rates. The average rate for a 30-year fixed mortgage hit 4.16% in the week ended March 17, exceeding 4% for the first time since May 2019, according to Freddie Mac. Last August, the rate stood at just 2.77%.
To be sure, 4.16% still represents a low rate when you look back over a longer time period. In November 2007, just prior to the Great Recession, the rate for that 30-year mortgage stood at 6.1%.
In any case, raging inflation has pushed bond yields higher, which in turn have pushed mortgage rates higher.
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Consumer prices soared 7.9% in the 12 months through February, a 40-year high. And the 10-year Treasury yield has surged to 2.16% from 1.51% at the end of last year.
Now the Federal Reserve has begun raising interest rates, which also boosts mortgage rates. With the median forecast from Fed officials now calling for six more rate hikes this year, mortgage rates are poised for a major jump.
If mortgage rates rise half as much as some economists predict the Federal Reserve will raise rates, that would put the 30-year fixed mortgage rate at 4.91%.
Rising mortgage rates combined with rising home prices provide a vicious one-two punch for those hoping to buy a residence.
“Record-low mortgage rates helped many first-time buyers stretch their budgets in 2020 and 2021,” said George Ratiu, manager of economic research at Realtor.com.
“Low rates also enabled homeowners to lower their monthly mortgage payments through refinancing. However, the days of sub-3% interest rates are firmly behind us, and we have yet to solve the market fundamentals of supply and demand.”