How 5% Mortgage Rates Could Affect Your Home Search
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Here's your money briefing for Friday, April 15th. I'm J.R. Whelan for The Wall Street Journal. A little over a year ago, we were talking about mortgage rates being at record lows, hovering near 2%. Fast forward to today, and mortgage rates have hit 5%, their highest level in more than a decade.
If you were kind of right on the edge of being able to afford a home, it probably just got a lot tougher.
So how are higher rates likely to ripple through the current tight housing market? We'll ask our economics and financial markets reporter Matt Grossman about that after the break.
The average 30-year fixed mortgage hit 5% this week, according to Freddie Mac. That's the highest it's been since 2011. So what's behind these rate increases? And what does it mean for your ability to buy a house? WSJ reporter Matt Grossman has been tracking the numbers, and he joins me now to discuss. Hey, Matt, thanks very much for being here.
Thanks for having me.
So, Matt, this has been a pretty sharp increase in mortgage rates. Less than a year and a half ago, they were at record lows, around 2.5%. And as recently as December, they were still at about 3%.
Yeah, this is actually the fastest increase in mortgage rates over a three-month period that Freddie Mac has reported since the late 1980s. So it's really been, as you say, a very rapid switch from a period when financing a home was very affordable to really a very different scenario now.
What does the jump to a 5% average 30-year mortgage rate mean right now?
So Matt, help us a little with mortgage rate 101 for a moment. What are the factors that go into a rise and fall in mortgage rates?
So mortgage rates have a lot of factors that go into them depending on who you are as a borrower and the property that you're using the mortgage to finance. But in general, they really closely follow some benchmark interest rates in the economy. For mortgage rates, the main benchmark is the yield on the 10-year Treasury note. which is a government bond that really sets the pace for borrowing costs throughout the economy. So when the 10-year yield is higher, people tend to see higher mortgage rates. And conversely, when the 10-year is down a bit, then mortgage rates might recede.
So why has the 10-year yield risen so much in just the past few weeks and months?
So the answer to that really comes down to inflation. Prices have been rising at the fastest pace in several decades, and that's the top concern of the Federal Reserve. The Fed's main tool to fight inflation is raising interest rates and also withdrawing some of its support for the bond markets, which has really made it very cheap for all kinds of people and companies to borrow money over the last couple of years. So the Fed is rapidly changing course on its monetary policy, and that is making borrowing much more expensive, whether the government and your paying interest on government debt or whether you're a homeowner and paying interest on a mortgage.
By the way, we're talking about the average 30-year fixed rate mortgage rate being at 5%. So in some places, rates are actually above 5%.
Yeah, that's an average rate, and the rate is going to depend quite a bit based on who you are and where you're living. If you are a wealthy homebuyer, maybe somebody who's older, has a great credit score, has been making your monthly credit card payments on time for decades, you might have a mortgage rate that's somewhat cheaper. On the other hand, if you're a first-time borrower, if you have some problems in your credit history and you don't have such a high credit score, it's definitely possible you'd see a rate above 5% right now.
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