Home hunters across the United States are facing a painful reality: rising mortgage rates are adding thousands of dollars to the cost of buying a home.
In April, average interest rates on a standard 30-year fixed mortgage were nearly 2 percentage points higher than a year ago, according to real estate data firm CoreLogic. Taking into account principal and monthly interest, a median priced home in the United States was 50% more expensive than in April 2021.
Mortgage rates have soared since the Federal Reserve announced in March that it was raising its short-term borrowing rate for the. As expected, the Fed said on Wednesday that it was – the biggest increase since 2000 – as policymakers try to control inflation.
Here’s what it means in dollars and cents: Someone who buys a $250,000 home with a 30-year fixed loan at last week’s average rate of 5.3% will pay $3,300 a year more than April 2021 mortgages, according to figures from the National Association of Realtors (NAR). A $429,000 house — the median price of a house, according to the St. Louis Federal Reserve Bank – will cost $5,640 more per year. A $1 million home would mean an additional $13,260 a year in mortgage payments, according to NAR figures.
“This additional cost could make it even more difficult for some potential buyers to navigate what will likely remain an expensive housing market,” said Jacob Channel, senior economics analyst for LendingTree, mentioned in a new report.
In Ohio, for example, the average mortgage rate climbed to 5.33% from 3.94% in January. A typical mortgage in the state is $241,000, which means about $200 per month in additional costs, or nearly $2,400 per year. In expensive California, the extra payments add up to more than $4,800, according to NAR.
Nationally, rising interest rates pushed up new mortgage payments by nearly $259 on average, which is more than $93,000 over the life of a 30-year loan, the group in a new analysis.
Mortgage rates are now rising as home prices continue to rise, pushing thebeyond the means of many middle-class Americans, who must compete with higher-income investors and buyers. As rates climb, more and more buyers opt for — one of the financial products implicated in the real estate crash of 2008.
Although home loan costs generally do not rise directly in line with the Fed’s benchmark rate, long-term mortgage rates generally track 10-year Treasury yields. Treasuries are affected by a range of economic factors, such as investor demand and inflation expectations.
Economists do not expect mortgage rates to fall any time soon. PNC Financial Services Group analysts expect the Fed to hike interest rates half a point on Wednesday in hopes of slowing the. Mortgage lenders are likely to follow suit.
While this would increase housing costs, it could also make it easier for some buyers to strike a deal as more budget-conscious buyers give up.