Mortgage loan rates nearing 4.5 percent

Increase likely signals yet another affordability crunch for homebuyers

Mortgage rates jumped again over the past week, prompting some economists to warn of a worsening affordability crunch in a housing market where prices have steadily climbed at double digit rates.

The average rate on 30-year fixed-rate mortgage climbed a quarter-point to 4.42 percent from 4.16 percent last week, according to the government sponsored mortgage finance agency Freddie Mac. Last week was the first time mortgage rates eclipsed 4 percent for the first time since 2019.

Mortgage rates have increased more than a point since the end of 2021, when they averaged 3.11 percent, according to Freddie Mac. For a homebuyer borrowing $300,000, that translates to $223 more in monthly payments.

Rates are climbing after the Federal Reserve last week raised short-term interest rates for the first time since 2018, signaling the end of a period of easy-money policies meant to foment an economic recovery during the pandemic. The central bank said it would raise interest rates another six times this year.

While the Federal Reserve doesn’t set mortgage rates, its actions influence all borrowing rates, including mortgages.

“Rising inflation, escalating geopolitical uncertainty and the Federal Reserve’s actions are driving rates higher and weakening consumers’ purchasing power,” Sam Khater, Freddie Mac’s chief economist said in a statement. “In short, the rise in mortgage rates, combined with continued house price appreciation, is increasing monthly mortgage payments and quickly affecting homebuyers’ ability to keep up with the market.”

Homebuyers were seeing their prospective monthly payments starting to climb even before the Federal Reserve’s actions. Nationally, prospective homebuyers applying for mortgages were expecting to pay a median monthly payment of $1,653 in February — an 8.3 percent jump from $1,526 in January, the Mortgage Bankers Association said Thursday.

Meanwhile, mortgage applications fell this past week by 8.1 percent, meaning fewer homebuyers and homeowners are applying for new loans or to refinance existing loans, according to the Mortgage Bankers Association.

“First-time homebuyers …. are increasingly challenged by both the rapid increase in home prices and higher mortgage rates,” Mike Fratantoni, chief economist at the Mortgage Bankers Association, said in a statement.

Rising mortgage rates may price out lower income buyers who are more sensitive to rising rates and monthly payments. Although

local Houston housing experts say rising rates are not dissuading many buyers yet, that could change if rates continue to climb above 4.5 percent.

The National Association of Realtors earlier forecast that sales would fall 3 percent in 2022, but the association's chief economist, Lawrence Yun, recently old CNBC he now expects home sales nationally to fall by 6 to 8 percent this year as rates hover around 4.5 percent.

In Februray, Houston’s median home prices rose 19 percent year-over-year and average home prices climbed 13 percent to just under $400,0000, according to Houston Association of Realtors.