Rising Rates Push Homeownership Further Out of Reach for Many
For the first week of May a 30-year fixed-rate mortgage sat at an average 5.27 percent rate.
In response to growing concerns regarding inflation, the Federal Reserve has been steadily increasing federal funds rates throughout the first half of this year. Since the beginning of the year rates have increased over two percent. Now, the Fed has announced an additional rate hike– the largest rate jump in over two decades.
Last week rates were increased half a percentage point. For the first week of May a 30-year fixed-rate mortgage sat at an average 5.27 percent rate. This is compared to 2.96 percent rate at the same time last year.
According to Freddie Mac, these are the highest rate levels since 2009. “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,” said Sam Khater, Freddie Mac’s Chief Economist.
These rate increases are already having an effect across multiple sectors of the economy. However, the effects are already having a notable impact on homebuying activity.
Increases to conventional mortgage rates means larger monthly payments and therefore less buying power. With home prices already reaching record-highs throughout most of the last year, many buyers are feeling these payment increases even more so. As a result, many buyers, especially first-time buyers, are putting a pause on their home search.
According to the National Association of Homebuilders (NAHB), the segment of adults planning to buy a home in the next 12 months fell for the third straight quarter down to 13%. “The housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market,” said NAHB Chief Economist Robert Dietz.
Homebuyers across Minnesota were already facing an uphill battle with low inventory and high prices. Now, increased rates has only compounded the issue and will leave more buyers priced out of the market.