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Mortgage rates at their highest since 2009

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

“Mortgage rates resumed their ascent this week as the 30-year fixed rate hit its highest level since 2009,” said Sam Khater, chief economist at Freddie Mac. “While housing affordability and inflationary pressures pose challenges to potential buyers, house price growth will continue but is expected to slow in the coming months.”

Hoping to rein in 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.

After the meeting, Fed Chairman Jerome Powell said more hikes are expected, including increases of more than 50 basis points. But Powell said the central bank wasn’t considering any bigger hikes than that.

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

Mortgage rates tend to follow 10-year US Treasuries. But rates are indirectly impacted by the Fed’s actions on inflation. When investors see or anticipate rate hikes, they often sell government bonds, driving up yields and, therefore, mortgage rates.

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

“The financial conditions facing homebuyers have changed significantly,” Danielle Hale, chief economist for Realtor.com said following the Fed’s announcement.

She said the cost of financing a home with a 20% down payment is up nearly 50% from a year ago, “an increase that has caused many buyers to rethink their budgets and likely eliminated some households from the home buying market for the time being. “

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

“House prices have continued to rise as rents are high and many young households seeking the certainty and relatively fixed costs of home ownership are feeling a strong sense of urgency to find a house and lock in a rate before mortgage rates and house prices go up again,” she said.

Looking ahead to the rest of the year, the housing market is uncertain, Lawrence Yun, chief economist for the National Association of Realtors, said at the organization’s legislative meeting this week.

“Mortgage loans today compared to a few months ago cost home buyers more,” Yun said. “For a median-priced home, the price difference is $300 to $400 more per month, which is a heavy toll on a working family.”

He believes that inflation will remain elevated over the next few months and that the market will see further monetary policy tightening through a series of rate hikes.

But, he said, as rates rise, house prices should fall.

Sources

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2/ https://www.cnn.com/2022/05/05/homes/us-mortgage-rates-may-5/index.html

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