Surging Mortgage Rates Squeeze Homebuyers

Number of the Day: The most relevant or interesting figure in personal finance

3.83%

That’s how high the average 30-year mortgage rate has spiked—up from 3.50% just a week ago, according to lender data provided to The Balance.

Homebuyers haven’t faced rates this high since 2020, our data shows, and it wasn’t that long ago that they were hovering much closer to 3%. The culprit? Rapid inflation. Rates on fixed mortgages generally move in the same direction as yields on 10-year Treasuries, and those yields have spiked to the highest in almost two years amid signs the Federal Reserve will move to contain soaring inflation by raising its benchmark interest rate. 

Rates are still relatively low by historic standards, but when combined with soaring sale prices, higher borrowing costs are increasingly discouraging homebuyers, polling shows. (The Balance’s daily data only goes back to April 2021 and the yearly highs and lows only as far back as 2020, but we do know the highest the 30-year average got in 2020 was 4.71% in March, while the lowest it went was 2.89% in December.)

“Frankly, I’ve been surprised at how quickly they’ve risen just in the last couple of weeks,” said Jeff Tucker, a senior economist at real estate company Zillow. “Home prices rose by a record amount in 2021, and to follow that up with rapidly rising mortgage rates takes the affordability for first-time homebuyers from bad to worse.”

Indeed, the math looks significantly different than it did just a year ago. Between prices and borrowing costs, the monthly mortgage payment on a typical house has risen by about $243 over the last year, according to Zillow home price data.

In fact, since rates are expected to keep rising, Tucker said, those who want to buy a home should consider moving quickly. Homeowners can always refinance if rates fall back down, he said.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.