Mortgage rates are soaring at the fastest pace in three decades as interest rates begin to rise.
According to government-backed mortgage company Freddie Mac, 30-year fixed-rate mortgages now average 4.72% — a sharp increase from 3.13% one year ago.
“Mortgage rates have increased 1.5 percentage points over the last three months alone, the fastest three-month rise since May of 1994,” Freddie Mac chief economist Sam Khater said in a press release. “The increase in mortgage rates has softened purchase activity such that the monthly payment for those looking to buy a home has risen by at least 20 percent from a year ago.”
Freddie Mac also revealed that the 15-year fixed-rate mortgage averages 3.83%, up from 2.42% one year ago.
Meanwhile, CNBC real estate correspondent Diana Olick wrote that total mortgage application volume is quickly plummeting — down 41% from one year ago. “Rising interest rates are crushing the mortgage market,” she explained, “as precious few homeowners can now benefit from a refinance and more potential homebuyers become priced out.”
“Mortgage application volume continues to decline due to rapidly rising mortgage rates, as financial markets expect significantly tighter monetary policy in the coming months,” economist Joel Kan told CNBC. “As higher rates reduce the incentive to refinance, application volume dropped to its lowest level since the spring of 2019.”
Indeed, the Federal Reserve recently voted to raise interest rates by 0.25% — the first such action since 2018, and likely the first of many rate hikes this year. During the 2020 recession, the central bank’s near-zero interest rates stimulated spending and borrowing — and therefore contributed to extraordinary demand for real estate.
As The Daily Wire’s Cabot Phillips explained on a recent episode of “Morning Wire,” the Federal Reserve is now warning of a housing bubble.
When asked why housing costs are spiking, Phillips pointed to inflation — which is currently at an 8% year-to-year rate — rising costs for lumber and fuel, and continued fallout from COVID-19. “During the pandemic, new construction projects were halted across the board, and that means the number of houses now up for sale is far lower than usual. It’s simple supply and demand,” he explained. “And unfortunately on that front, it will likely take years for new home construction to once again meet demand.”
“Some real estate experts say that increasing mortgage rates should cool the market a bit,” Phillips commented. “Remember, mortgage rates were down around 2% during the pandemic, so a lot of people were simply able to afford houses that a few years earlier, when rates were higher, would’ve been out of their price range.”
Some experts believe that “until the supply of houses meets the overwhelming demand that we’re seeing right now, prices will continue to rise,” Phillips remarked.