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During the week ending 5 May, U.S. mortgage interest rates for a 30-year, fixed-rate loan averaged 5.27 percent, moving up from 5.10 percent the week before, according to the Federal Home Loan Mortgage Corporation (Freddie Mac).
The rate was the highest since 2009. A year ago, rates averaged 2.97 percent and rose to 3.22 percent in January this year.
The spike is the fastest increase in mortgage rates “in decades,” CNN said.
“While housing affordability and inflationary pressures pose challenges for potential buyers, house price growth will continue but is expected to decelerate in coming months,” Freddie Mac chief economist Sam Khater said in a statement announcing the rate rise.
The climb in home prices is expected to ease, in part, because the U.S. Federal Reserve will continue to raise interest rates through the year, including a projected half-point bump in June and again in July. (See related story in this issue.)
Mortgage interest rates are closely tied to yields on the ten-year treasury note.
“The financial conditions facing home shoppers have shifted in a big way,” Danielle Hale, Realtor.com’s chief economist, said in a public statement after the Fed raised rates by a half-point last week.
The cost of a mortgage has increased by about 50 percent from a year ago, she said, “a surge which has caused many shoppers to rethink budgets and likely knocked some households out of the home purchase market for now.”
Mortgage rates probably will pause at this level for some time, Michael Fratantoni, the Mortgage Bankers Association’s chief economist, told The Wall Street Journal, but the market for refinancing loans is unlikely to rebound any time soon.
TRENDPOST: The desire to own a house will remain strong, but the number of people able to afford to buy a home will continue to diminish.
The number of new houses being built will be limited by shortages of materials and a lack of available land, as we reported in “Housing Market: Sales Up, Fewer Homes for Sale” (22 Feb 2022).
In addition, those materials are dramatically more expensive than they were before the COVID War, which we documented in “Lumber Prices Add $36,000 to Cost of New Home” (4 May 2021).
Millennials are entering prime home-buying years, so competition for existing homes also will increase sharply, in part because fewer people will be able to afford to leave one dwelling and buy a new one of comparable quality.
Also, as interest rates climb along with the cost of living, the pool of qualified buyers will shrink.
By the end of the year, the Fed will have boosted interest rates to at least 2 percent and probably higher.
We maintain our forecast that when the Fed boosts the fed funds interest rate to or above 1.5 percent, the housing prices will soften and foreclosures will escalate. Minus a wild card event, such as the explosion of WWIII or war in the Middle East that will spike oil prices, etc., while we do forecast a housing slump, we do not forecast a housing market crash.