The average 30-year fixed interest rate, the most popular mortgage product, hit a new high this week, Freddie Mac said Thursday. It has not been so high since February 2011. Low interest rates fueled the revival of the US housing market after the Great Recession and helped push up house prices to record levels. But after two years hovering at historic lows, interest rates have fallen: In January, the 30-year fixed average was 3.22 percent. It was 3.04 percent a year ago. Although mortgage rates were expected to rise, they were rising faster than many economists had predicted. Motivated by inflation, interest rates have soared. Inflation, which severely affects consumers in their daily lives, also causes pain to home buyers. Several months ago, a home buyer would want to pay $ 1,347 a month with a $ 300,000 loan at 3.5 percent. If the buyer waited until this week, the same loan at 5 percent, would increase the monthly payment by $ 263, to $ 1,610. The Federal Reserve’s efforts to curb inflation are driving up interest rates. Although the Fed does not set mortgage rates, it does affect them. The central bank took the first steps to reduce inflation earlier in March, when it raised the benchmark interest rate for the first time since 2018. In addition to raising federal interest rates, the Fed will soon begin the process of reducing its balance sheet. . The US Federal Reserve holds about $ 2.74 trillion in mortgage-backed securities. She said she would unveil plans to reduce her attendance at her meeting in May. The more aggressively the Fed sells these bonds, the faster it is likely to raise mortgage rates. The cost of housing is not only borne by buyers and sellers. It has also proven to be a major complication of the economic recovery and potentially jeopardizes the ability of policymakers to curb leaky inflation throughout the economy. Inflation is rising at the fastest pace in 40 years, with prices rising 8.5% in March from a year earlier. The shelter is a significant part – about a third – of the basket of goods and services used to calculate inflation or what is known as the “consumer price index”. This means that if housing costs do not change substantially soon, it will be much harder for overall inflation to simmer to more normal levels. Housing costs also stand out from other categories, such as gas, food or airline tickets, which may be more vulnerable to forces such as an ongoing pandemic, supply chain breaks or a war. For example, gas or energy prices are unlikely to remain as high as they were when Russia invaded Ukraine and had a huge impact on world energy markets. Food can also become cheaper as supply chains smooth over time. But these forces do not apply to housing costs in the same way. Landlords who can lock in higher rents are unlikely to shave prices a year later. Buyers will continue to shout about the few homes available. And as the housing market has been overwhelmed by competitive supply wars and cash bids, it is unclear how drastically demand will have to fall before housing costs can change substantially. Even Fed officials are leading the way. This week, Fed Governor Christopher Waller said he sold his home in St. Louis to an uncontrolled cash buyer. “The national housing market is beyond belief,” Waller told a Fed hearing Monday. It was the Fed’s actions during the pandemic that lowered mortgage rates. The 30-year fixed average reached 2.65 percent in January 2021. Reducing the federal interest rate to almost zero and buying bonds and mortgages to support the economy, the central bank ushered in an era of cheap housing. As lending became less expensive, home prices rose as buyers could afford to spend more on housing. The latest Case-Shiller housing index showed that prices rose 19.2% in January, year-on-year. Phoenix, Tampa and Miami rose 32.6%, 30.8% and 28.1% respectively. Prices should be moderated, but rising prices will continue to make affordable price a challenge. And while higher interest rates are expected to slow the housing market over time, the factors that led to the housing boom remain. Stocks remain low and demand remains high. “We have already seen buyers slowing to lower home sales,” said Lisa Sturtevant, a housing market analyst in Alexandria, Virginia. “Part of that has to do with the fact that there are not enough to buy. “I think we will probably see a pretty strong spring as people try to get in before they think the rates will go even higher.” With rising interest rates, the housing market boom in 2020 and 2021 has slowed this year. Refinancing applications have fallen to their lowest level since 2019. The Bank Mortgage Association predicts total start-ups will fall by more than 35 percent this year. Purchasing companies are expected to grow by 4 percent, but refinancing companies are projected to fall by 64 percent. “The jump in mortgage rates will slow the housing market and further reduce refinancing demand for the rest of this year,” Mike Fratantoni, chief economist at MBA, said in a statement. “Higher house prices and interest rates as well as continued supply constraints are now expected to lead to an annual decline in existing home sales.”
