Mortgage rates hit their highest level in more than a decade – and even wealthy buyers are feeling the pain

Mortgage rates are soaring and no one is spared.

The average rate on a 30-year fixed-rate mortgage was 5% in the week ending April 14, which represents a 28 basis point increase from the previous week, Freddie Mac FMCC,
+0.06%
reported Thursday. A basis point is equal to one hundredth of a percentage point, or 1% of 1%.

This is the first time since February 2011 that the benchmark mortgage product has crossed the 5% mark. Mortgage rates are now nearly 2 percentage points higher than they were during the popular spring homebuying season in 2021. This time last year, the average mortgage rate 30-year fixed rate was 3.04%.

The 15-year fixed-rate home loan crossed the 4% threshold for the first time since 2018, at 4.17% on average. The 5-year Treasury-indexed hybrid variable-rate mortgage averaged 3.69%, up 13 basis points from the previous week.

“As Americans face historically high inflation, the combination of rising mortgage rates, high home prices and tight inventories makes the pursuit of homeownership the most expensive in a generation,” said Sam Khater, chief economist at Freddie Mac, in the report.

Earlier this week, the 10-year Treasury bond approached 2.8% but then declined. Mortgage rates roughly follow the direction of long-term bond yields, including the 10-year Treasury yield TMUBMUSD10Y,
2.791%.

Bond investors are watching inflation indicators and the Federal Reserve’s position closely. Some analysts considered the most recent consumer and producer price indexes signaling a peak in inflation, but others argue that a peak may be premature to declare.

Meanwhile, mortgage rates are rising, putting considerable pressure on buyers.

“While this may still prove to be a blow, there is increasing evidence that a combination of significantly higher mortgage rates and a sharp rise in house prices is having a cooling effect on demand. “said Joshua Shapiro, chief U.S. economist at MFR Inc., said in a research note, citing mortgage application data.

Indeed, data from the Mortgage Bankers Association in recent weeks has shown a drop in applications for Federal Housing Administration-backed mortgages, which economists see as an indication that first-time home buyers are being pushed out of the market. FHA loans are more popular with first-time buyers because they have less onerous eligibility requirements in terms of down payments and credit ratings than Fannie Mae FNMA-backed loans,
+0.96%
and Freddie Mac, although they generally have higher mortgage rates.

But there is evidence that even the wealthiest homebuyers are also feeling the pain of higher rates and rising prices. A recent report from real estate brokerage Redfin RDFN,
-1.91%
found that mortgage rate locks for loans used to buy second homes had fallen to their lowest level since May 2020.

While demand for these vacation properties was still 13% above pre-pandemic levels, Redfin researchers said the historically rapid rise in mortgage rates had cost even buyers with the most money to spend. .

“The pandemic-induced surge in vacation home sales is coming to an end as mortgage rates rise at their fastest rate in history, forcing some second home buyers to back off,” the statement said. Redfin’s deputy chief economist, Taylor Marr, in the report.

Marr added that new lending fees affecting mortgages for second homes likely also impacted demand from buyers, while stock market volatility may have eroded some of those buyers’ down payments. Nevertheless, it is a worrying sign for the housing market as a whole.

“When rates and prices rise so much that a vacation home starts to look more like a drag than a good investment and a fun place to bring your family for the weekend, many potential buyers have second thoughts” , Marr said.

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