Mortgage Rates Expected To Spike (Again)—but There’s a Surprising Upside for Homebuyers

In yet another blow for homebuyers, mortgage interest rates are soon expected to rise even higher.

The U.S. Federal Reserve announced on Wednesday that it will be raising its short-term interest rate by half a percentage point in its crusade to tame inflation. This means that mortgage interest rates, which are separate from the Fed’s rates but typically follow the same trajectory, will likely rise even higher.

That’s bad news for homebuyers who have been grappling with record-high home prices and rates now topping 5%. A year ago, rates were just under 3%. They’ve since surged, averaging 5.1% in the week ending April 28, according to the most recent Freddie Mac data, with many lenders reporting rates in the mid-5% range this week.

Higher rates can tack hundreds of dollarsonto a monthly mortgage payment and tens of thousands of dollars onto a 30-year fixed-rate loan. That’s forcing many buyers to put their dreams of homeownership on hold as they can’t afford the punishing combo of high rates and home prices.

“We’re running out of precedents,” says Len Kiefer, Freddie Mac’s deputy chief economist. “It’s a real test for the market. We haven’t seen anything like this speed of [mortgage] rate increases in a generation.”

Someone buying a home today is likely to pay about 47% more for the same propertycompared with a year ago, when factoring in higher prices and rates. And that’s on top of all of the extra money they’re spending due to high inflation, rising gas and energy prices, and higher rents.

“Buyers are navigating what they can afford,” says Realtor.com® Chief Economist Danielle Hale. “They can’t afford the same price anymore.”

Article originally posted by Realtor.com