Homebuyers and owners scramble to secure low mortgage rates before more hikes come

This week's more than quarter-point jump in mortgage rates is sending a dire message to homebuyers and owners: Time is running out.

Weary buyers already facing the worst affordability conditions are now clambering to snag a low rate before any future increases price them out altogether, according to interviews with real estate pros, while the number of refi candidates coming through the door have dwindled as rates soared past 4% for the first time in almost three years.

Mortgage rates have marched up by a full percentage point since the beginning of 2022, hitting 4.16% this week, according to Freddie Mac, and further increases may come as the Federal Reserve is set to raise a key benchmark rate up to six more times this year to combat inflation.

“The short answer is it’s painful, I won’t lie. Rates have been escalating every single day for basically the last 45 days,” Scott Sheldon, branch manager at New American Funding in California, told Yahoo Money. “It’s not very fun to be a mortgage originator in this environment. You quote one rate one day and it’s something different a few days later.”

'Don’t play the rate-float game'

As demand increases and inventory levels remain near historic lows, homebuyers aren’t taking any chances with mortgage rates. Purchase locks increased in February as strong housing demand drove buyers to secure rates despite increases, according Black Knight’s latest Originations Market Monitor report.

“I locked many people last week telling them the Fed has said they are going to raise rates ... so let’s not take any chances,” John Stearns, a senior mortgage loan originator with American Fidelity Mortgage in Wisconsin, told Yahoo Money.

First-time homebuyers face challenging housing conditions. Going into 2022, the number of homes for sale was already near record lows. High demand coupled with rising home prices has also been a financial blow, as bidding wars and all-cash offers saturate an ultra competitive market.

“Multiple borrowers have been left out of the home-buying market over the past year, even when well qualified, due to multiple bids and skyrocketing prices,” said Jeffrey Ruben, president of WSFS mortgage. “The rise of inflation to levels we haven’t seen in four decades coupled with the unprecedented rise in home prices in 2021 is having impacts on home affordability for many people.”

Now add in rising mortgage rates.

“What I’m telling clients now is if you're happy with the rate and price ... and what you can afford, lock the rate," Sheldon said. "Don’t play the rate-float game."

'Refinancing chances may be over'

Rising rates have also shut off refinance incentives.

Refi activity has dropped more than 85% from December 2020 and is now at its lowest level in the post-Great Recession era — outside of 2018 — when rates rose above 4.5%, according to mortgage technology and data provider Black Knight.

“The refinancing chances may be over,” Lawrence Yun, chief economist of the National Association of Realtors, told Yahoo Finance Live (video above). "Because rates will only go higher from this point."

At 4.16%, only 2.6 million high-quality candidates now could shave at least three-quarters of a point off their mortgage by refinancing, saving $302 per month. That’s three-quarters less than the 11 million at the beginning of the year who could save that much, according to figures Black Knight provided Yahoo Money.

"The continued sharp rise in 30-year rates will further constrain refinance activity and speed the transition to an equity-centric market with a focus on cash-out lending,” Andy Walden, Black Knight's vice president of enterprise research and strategy, told Yahoo Money.

‘Rates might hit 4.5%’

The rise in mortgage rates isn't over as the Fed plans future hikes of its short-term benchmark rate, Yun said, though those anticipated increases have largely been baked in.

"Most of the increases have already occurred in anticipation of the Fed making several moves this year, Yun said, noting that the relationship between the Fed rate and the 30-year mortgage rate is not one to one with the home loan rate increasing more modestly after the central bank's moves.

"From this point onward I would say that mortgage rates might hit 4.5% toward the year end."

Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

Read the latest personal finance trends and news from Yahoo Money.

Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn.