Surging mortgage rates are making the prospect of buying a home even more expensive for Americans — many of whom have already grown weary about the state of the housing market.
The 30-year fixed-rate mortgage averaged 3.69% for the week ending Feb. 10, up 14 basis points from the previous week, Freddie Mac FMCC, -1.00% reported Thursday. It’s the highest level for the benchmark mortgage rate since January 2020, before the COVID-19 pandemic had officially reached U.S. shores.
The 15-year fixed-rate mortgage, meanwhile, rose 16 basis points to an average of 2.93%. The 5-year Treasury-indexed adjustable-rate mortgage averaged 2.8%, up nine basis points from the previous week.
“The normalization of the economy continues as mortgage rates jumped to the highest level since the emergence of the pandemic,” Sam Khater, Freddie Mac’s chief economist, said in the report. “Rate increases are expected to continue due to a strong labor market and high inflation, which likely will have an adverse impact on home buyer demand.”
There’s already evidence that Americans have soured on the prospect of buying a home. A new survey from Fannie Mae FNMA, +0.28% showed that in January only 25% of respondents believe that now is a good time to buy a home, representing a record low since the mortgage giant began tracking the data. Meanwhile, 69% of people said it was a good time to sell a home.
“‘With millennials and Gen Z forming households at faster rates, new home construction would have to triple the rate of home completions to close the gap in five to six years.’”
“Younger consumers — more so than other groups — expect home prices to rise even further, and they also reported a greater sense of macroeconomic pessimism,” Doug Duncan, chief economist for Fannie Mae, said in the report, noting that young Americans’ “sense of optimism around their personal financial situation declined.”
“All of this points back to the current lack of affordable housing stock, as younger generations appear to be feeling it particularly acutely and, absent an uptick in supply, may have their homeownership aspirations delayed,” Duncan added.
Rising interest rates are another source of pessimism for these buyers. According to Fannie Mae, more than half of the survey respondents (58%) said they expect mortgage rates to rise in the next 12 months, in line with economist’ expectations.
As Americans consider the prospect of higher rates, some are attempting to take action — but finding major obstacles lie in their path. “Real-estate markets are caught in a lopsided dynamic with many buyers eager to find the right home before rates rise even higher, but very few available homes for sale as a result of almost a decade and a half of underbuilding,” said George Ratiu, manager of economic research at Realtor.com.
According to Ratiu, the housing shortage has surpassed 5.8 million homes as of the end of 2021. “With millennials and Gen Z forming households at faster rates, new home construction would have to triple the rate of home completions to close the gap in five to six years,” he said.