Mortgage rates hit 5% for the first time since early 2011

Mortgage rates in the U.S. surged, reaching 5% for the first time in more than a decade.

 

The average for a 30-year loan jumped from 4.72% last week, Freddie Mac said in a statement Thursday. The last time rates hit 5% was in February 2011.

 

Borrowing costs have been soaring since the start of the year, tracking the jump in yields for the 10-year Treasury. Last month, the Federal Reserve raised its benchmark rate and signaled more increases to come in an effort to slow inflation, which has accelerated to the fastest pace since 1981.

 

Higher mortgage rates are adding to pressure on would-be buyers in a market in which purchase prices are still skyrocketing two years into the pandemic housing boom. While some people are putting off their searches after getting priced out, the supply of listings is so tight that bidding wars remain common.

 

At 5%, borrowers with a $300,000 mortgage would pay $1,610 a month. That’s up $327 from the end of last year when rates averaged 3.11%.

 

Affordability hit

The hit to buyer affordability since the beginning of the year is equivalent to an additional 20% increase in home prices, according to Greg McBride, chief financial analyst at Bankrate.com

 

“For homebuyers under age 35, a 5% rate is uncharted territory,” he said. “The speed at which rates are going up will cool the housing market by reducing demand. But that may only mean housing goes from sizzling to warm. Demand still exceeds what is a record-low level of supply.”

 

Winning a home in the red-hot San Diego market requires big offers. But after successfully vanquishing the competition, two clients of mortgage broker Lisa Miller-Carnation surprised her by backing out. The mortgage payments — with this year’s jump in rates — gave them sticker shock, she said.

 

One couple with a combined income of more than $200,000 walked away from a $793,000 single-family house with three bedrooms. On top of day care costs for two children, car payments and student loans, a $4,600 mortgage bill was simply too much. They’re now looking at lower-cost townhouses, said Miller-Carnation, a broker with Integrity Mortgage Group who also sells real estate.

 

“We’re starting to see a lot of fallout in the market,” she said.