Mortgage rates hit highest level since 2009

May 5, 2022, 12:31 PM | Updated: Jun 7, 2022, 5:54 pm

(CNN) — Mortgage rates rose this week, continuing an upward trend that has pushed rates more than two percentage points higher this year.

The 30-year fixed-rate mortgage averaged 5.27% in the week ending May 5, up from 5.10% the week before, according to Freddie Mac. It is the highest since 2009 and well above the 2.96% average from this time last year.

“Mortgage rates resumed their climb this week as the 30-year fixed reached its highest point since 2009,” said Sam Khater, Freddie Mac’s chief economist. “While housing affordability and inflationary pressures pose challenges for potential buyers, house price growth will continue but is expected to decelerate in the coming months.”

Utah’s Housing Market:

Real estate agent Scott Robbins told KSL-TV that demand for homes in Utah is still strong.

“Utah is on the map,” he said. “It’s not like more people are leaving. People are coming and want to be here.”

Robbins, an associate broker at Summit Sotheby’s International Realty, said he recently had a busy open house and quickly got two offers. A year ago he said he would have received 10 or more offers.

“I would be more concerned if I did an open house and no one was coming through and no one was submitting offers,” Robbins said.

Zions Bank senior economist Robert Spendlove agrees that there is still strong demand to buy a home in the Beehive State. However, he said the quick jump in mortgage rates is having a big impact on buyers’ budgets and their ability to qualify for a loan.

“We’re now starting to see people that are overpricing their homes are seeing them sitting on the market longer and we’re seeing them pull back on those prices a little bit,” Spendlove said. “It’s been a remarkable shift.”

Senior research fellow Dejan Eskic at the University of Utah’s Kem C. Gardner Policy Institute said some potential buyers are being priced out of the market because of the rising rates. He said the higher mortgage rates could also discourage potential move-up buyers from listing their homes.

“In order for you to upgrade you have to substantially increase your monthly payment,” Eskic said. “So a lot of people are, in that sense, stuck. So they’re not willing to sell their home. So that’s going to keep them in their home longer and there’s going to be less existing supply.”

Hoping to curb inflation, the Federal Reserve announced earlier this week that it would raise the federal funds rate by half a percentage point, the biggest jump since 2000.

Following the meeting, Fed chairman Jerome Powell said that more hikes are expected, including more 50 basis point increases. But Powell said the central bank is not considering any hikes larger than that.

“A 75-basis-point increase is not something the committee is actively considering,” Powell told reporters. “If inflation comes down, we’re not going to stop. We’re just going to go down to 25-basis-point increases.”

Mortgage rates tend to track 10-Year US Treasury bonds. But rates are indirectly impacted by the Fed’s actions on inflation. As investors see or anticipate rate hikes, they often sell government bonds, which sends yields higher and with it mortgage rates.

Since the beginning of this year, mortgage rates have climbed more than two percentage points, the fastest pace in decades.

“The financial conditions facing home shoppers have shifted in a big way,” said Danielle Hale, chief economist for following the Fed’s announcement.

She said the cost of financing a home with a 20% down payment has increased by nearly 50% from a year ago, “a surge which has caused many shoppers to rethink budgets and likely knocked some households out of the home purchase market for now.”

At the same time, she said, demand to buy a home is still strong.

“Home prices have continued to grow as high rents and a large number of young households looking for the certainty and relatively fixed costs of home ownership feel a strong sense of urgency to find a home and lock in a rate before mortgage rates and home prices climb again,” she said.

Looking ahead to the rest of the year, there is uncertainty in the housing market, Lawrence Yun, the National Association of Realtor’s chief economist said at the organization’s legislative meeting this week.

“Mortgages now compared to just a few months ago are costing more money for home buyers,” Yun said. “For a median-priced home, the price difference is $300 to $400 more per month, which is a hefty toll for a working family.”

He estimates inflation will remain elevated for the next several months and that the market will see further monetary policy tightening through a series of rate hikes.

But, he said, as rates rise home prices are expected to cool.

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Mortgage rates hit highest level since 2009