A report from US mortgage giant Freddie Mac on Thursday shows the average lending rate for a 30-year fixed-rate mortgage hit 5% this week, up nearly 2 percentage points from a year ago. barely a year and a number probably even higher in the coming year.
“As Americans face historically high inflation, the combination of rising mortgage rates, high home prices and tight inventories makes the pursuit of homeownership the most expensive in a generation,” wrote Freddie Mac in a note accompanying the new mortgage data.
While average U.S. mortgage rates have risen at the fastest pace in more than 30 years over the past three months, the 5% benchmark comes just a month after a 0.25% increase by the Reserve federal lending rate. The increase is the first in a series of upward adjustments planned by the Fed as the monetary policy body attempts to rein in rising inflation.
Higher Fed rates will increase borrowing costs for mortgages, auto loans, credit cards and business loans. By doing so, the Fed hopes to slow economic growth and rising wages enough to contain high inflation, which has hurt millions of households and poses a serious political threat to President Joe Biden.
Many economists said they worried the Fed waited too long to start raising rates and that policymakers might end up reacting so aggressively that they would trigger a recession.
Earlier this week, the Department of Labor announced that the annual inflation rate in the United States hit 8.5% in March, the highest since 1981. And Utah was among a group of states of Mountain West under even greater inflationary pressure with an annual inflation rate of 10.4 leading the country. % in March.
So what does this mean for a current buyer?
According to Thursday’s Wall Street Journal report, buying the median U.S. home at rates a year ago meant a monthly mortgage bill of about $1,223 after a 20% down payment, according to calculations by economist George Ratiu. at Realtor.com. At recent rates, such a purchase would require a monthly payment of almost $1,700, an increase of 38%, he estimated.
And out West, especially for buyers in high-demand states like Utah, the impacts of ongoing rate increases could be even worse.
Last month, as the nation’s average 30-year fixed mortgage rate neared 4%, 67% of Utah households were already “off-price” from the state’s median-priced home, according to Dejan Eskic, senior researcher at the University. from the Kem C. Gardner Policy Institute in Utah, specializing in housing research.
“It’s bad,” Eskic said.
The median priced single-family home in Utah was $512,000 statewide in the fourth quarter of 2021, according to the National Association of Realtors.
“A full two-thirds of Utah cannot afford the median-priced home anywhere because of how quickly rates have risen over the past two months,” Eskic said in the article. March.
“If you had to wait to buy in the spring, you’re probably out of luck,” Eskic said, as rising interest rates push even more homes out of reach with higher monthly loan payments.
Utah’s housing problem continues to be a supply and demand issue. Shouldn’t the rise in interest rates therefore help to curb demand?
Not in today’s market, Eskic said.
Rising interest rates will slow demand, he said, but not “enough to completely slow the market because there is nothing to buy.”
The COVID-19 pandemic has upended housing markets across the country as thousands of Americans reassessed their lives and left big cities in search of more space at lower prices. Many looked west, especially to states like Utah, where jobs were booming, and Idaho, where housing was relatively affordable.
As a result, states like Utah and Idaho had record years for home sales and price increases. In Utah, experts have warned of a “severely unbalanced” housing market as demand continues to dramatically outpace supply.
But it’s not just the pandemic’s fault. This has only worsened and accelerated the housing problem in Utah. The housing shortage in the West began years ago in the midst of the Great Recession, after the subprime mortgage crisis sent the national and global economy into a death spiral. After the crash, homebuilding contracted and the market has struggled to keep up with demand ever since.
Contributor: Associated Press