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For the first time since May 2019, interest rates for 30-year, fixed-rate mortgages have risen above 4 percent, the Federal Home Loan Mortgage Corporation reported last week.
The rate hit a historic low of 2.65 percent in January 2021 and stood at an average of 3.22 percent at the beginning of this year.
Rates will continue to rise; mortgage rates are closely linked to the yield on 10-year treasury notes, which are pegged to the U.S. Federal Reserve’s official interest rate.
The Fed hiked its rate by a quarter-point last week and announced plans for six additional boosts this year (see related story in this issue).
The rise will cut into home sales, analysts say.
The last time mortgage rates topped 4 percent, the median selling price of a home was $277,000; today, the median is $357,300, about 23 percent higher, according to the National Association of Realtors (NAR) (see related story in this issue).
At an interest rate of 4 percent, the monthly payment on a $375,000 house would be $220 more than in December 2020, when interest rates were scraping bottom, The Wall Street Journal calculated, adding $79,200 to the lifetime cost of a 30-year loan.
Higher interest rates cut applications for mortgage loans by 3.9 percent in February, according to the Mortgage Bankers Association, less of a reduction than analysts had expected, the WSJ said, due in part to the shortage of houses for sale.
At the end of last month, there were 870,000 homes on the U.S. market, a 1.7-month supply and close to a record low, the NAR reported.
Also, the number of people applying to refinance their mortgages plummeted to four million in February from 18 million a year before, data service Black Knight said.
That will slash mortgage originations for single-family homes by 38 percent this quarter, the Federal National Mortgage Association calculated.
TREND FORECAST: As we noted throughout this Trends Journal, inflation and rising interest rates are beginning to hobble the U.S. housing market, confirming the trend we have been highlighting for months.
When the U.S. Federal Reserve lifts interest rates above 2.5 percent, mortgage rates will be approaching, if not past, 6 percent, sharply contracting the housing market.