Mortgage rates hit 5%, an 11-year high

·Personal finance writer
·3 min read

Mortgage rates hit 5% this week, the highest level since February 2011, continuing a stunning ascent since the start of 2022.

The rate on the 30-year fixed mortgage jumped more than a quarter-point in a week from 4.72% last week, according to Freddie Mac. In the last five weeks alone, the rate has climbed 1.24 percentage points and is 1.89 points higher than at the end of last year.

The rapid rise in rates exacerbates an already ugly affordability crisis for homebuyers as the traditional buying season gets underway, while shutting out most homeowners from refinancing into a lower rate.

“As Americans contend with historically high inflation, the combination of rising mortgage rates, elevated home prices and tight inventory are making the pursuit of homeownership the most expensive in a generation,” said Sam Khater, Freddie Mac’s chief economist.

With rates jumping, potential homebuyers are seeking other ways to afford runaway home prices, with more buyers turning to adjustable-rate mortgages.

The share of ARM applications last week hit 7.4%, the highest share since June 2019, according to the Mortgage Bankers Association survey for the week ending April 8. Government-backed loans favored by first-time buyers and which require smaller down payments also saw an uptick.

“In a promising sign of strong purchase demand amidst affordability challenges, both conventional and government purchase applications increased,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

At the same time that buyers scramble to afford to purchase, they are watching their budgets shrink as they contend with 40-year high inflation, including rising rental affordability challenges. Rental prices grew approximately 20% from March 2020 to March 2022, according to Realtor.com's monthly rental report.

“Higher costs and declining real wages weigh heavily on people contemplating housing choices this spring," said George Ratiu, Realtor.com manager of economic research. “For now, many first-time buyers are still feeling the sting of sticker shock, with the mortgage payment for a median-priced home running $530 above a year ago, adding over $6,300 to the annual housing budget.”

A house on sale is seen in Washington D.C., the United States on Dec. 12, 2021. U.S. annual home price growth remained strong at 18 percent in October, the highest recorded in the 45-year history of the index, according to CoreLogic's Home Price Index. (Photo by Ting Shen/Xinhua via Getty Images)
A house on sale is seen in Washington D.C., the United States on Dec. 12, 2021. U.S. annual home price growth remained strong at 18 percent in October, the highest recorded in the 45-year history of the index, according to CoreLogic's Home Price Index. (Photo by Ting Shen/Xinhua via Getty Images)

Refinance incentives are now few and far between for homeowners.

The refinance index decreased 5% from the previous week, according to the MBA, and 62% lower than the same time one year ago. According to the MBA, refinance activity declined to its lowest level since 2019 – decreasing to 37.1% of total applications from 38.8% the previous week.

“Refi business is practically gone, it’s all dried up at this point from the rate-and-term perspective," Robert Heck, vice president of Mortgage at Morty, told Yahoo Money.

At 5%, only 1.34 million high-quality candidates could shave at least three-quarters of a point off their mortgage by refinancing, down from 1.65 million candidates two weeks ago and 11 million at the start of the year, according to figures mortgage technology and data provider Black Knight gave Yahoo Money.

On average, these homeowners could save $316 per month if they refinance at today's rates.

YF Plus
YF Plus

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.