Higher mortgage rates set stage for lower home sales
LOS ANGELES, April 21, (AP): Low mortgage rates have helped juice the housing market over the past decade, easing the way for borrowers to finance ever-higher home prices.
A run-up in rates in recent weeks is threatening to undo that dynamic, setting the stage for a slowdown in home sales this year as the increased borrowing costs reduce would-be buyers’ purchasing power.
The average weekly rate on the benchmark 30-year mortgage has risen swiftly since the first week of this year, when it stood at 3.2%. Last week it climbed to 5% for the first time in more than a decade. This week it rose to 5.11%, according to mortgage buyer Freddie Mac. A year ago, it was 2.97%.
Mortgage rates’ rise follows a sharp move up in 10-year Treasury yields, reflecting expectations of higher interest rates overall as the Federal Reserve starts hiking short-term rates in order to combat surging inflation.
While higher rates could translate into less frenzied competition for homes, most homeowners with a mortgage have locked in ultra-low rates over the years and will have less financial incentive to sell, which could lead to fewer homes up for sale, economists say.
Consider, out of the roughly 62% of U.S. homes that have a mortgage, some 92% of them have home loan rates at or below 5%, according to CoreLogic. And 57% of those homes have mortgages with rates at or below 3.5%.
“We’re already in record-low inventory,” said Molly Boesel, principal economist at Corelogic. “So that could make the crunch even bigger.”
Mortgage rates been declining for decades, from 18% in the early 1980s to below 3% last year. That trend added a financial incentive for homeowners, who after a few years could refinance their mortgage or sell their home and lock in a lower rate.