For the first time in over a decade, the average 30-year fixed-rate mortgage climbed to 5% at the start of April after falling to an all-time low during the pandemic. As rates continue to climb higher, homebuyers are being priced out of a red-hot market in mass numbers, and more significant gains are likely if the Fed continues to raise its financial benchmarks to put a cap on runaway inflation, Realtor.com reports.
The consumer price index is up 8.5% year-over-year, meaning that everyday costs for energy, food and airfare are becoming increasingly unaffordable for many households already contending with elevated housing costs.
A year ago, buying the median American home at prevailing rates meant a monthly mortgage bill of about $1,223 after a 20% down payment, according to calculations by George Ratiu, an economist at Realtor.com. At recent rates, such a purchase would require a monthly payment of nearly $1,700—a 38% increase, he estimated.
Interest rates are rising elsewhere in the economy too, lifted by the Fed’s plans to raise benchmark overnight-lending costs and draw down its support for bond markets. In doing so, the Fed aims to bring demand into balance with supply, chilling upward pressure on prices.
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