The rapid rise in mortgage rates didn’t abate this week, with the rate on the most common home loan hitting a more than three-year high.
The rate on the average 30-year fixed rate mortgage jumped to 4.42%, up from 4.16% a week ago, according to Freddie Mac. That marks the highest level since the last week of January 2019.
Rates have jumped more than a half-point in two weeks — the largest two-week jump since June 2009 — intensifying pressure on homebuyers facing the worst affordability conditions and essentially shutting off refinance opportunities for owners.
"That's going to make it particularly challenging for first-time homebuyers because that immediately goes into their mortgage payment ,” Freddie Mac Deputy Chief Economist Len Kiefer told Yahoo Money. “You have prices up, loan sizes up, interest rates up. All of that together, if you do the math, it's a pretty significant change in payment.”
Why rates are rising
The 30-year rate has increased more than a full percentage point since the start of the year, its rapid rise largely unexpected with most economists initially predicting the rate to hit 4% by year-end.
But that was before the worst inflation in 40 years and the invasion of Ukraine.
“Rising inflation, escalating geopolitical uncertainty and the Federal Reserve’s actions are driving rates higher and weakening consumers’ purchasing power,” said Sam Khater, Freddie Mac’s chief economist.
Remarks from Federal Reserve Chairman Jay Powell this week saying the central bank must move "expeditiously" to get inflation under control pushed bond yields higher. Mortgage rates track the 10-year Treasury yield, which is now at the highest level since 2019.
“In short, the rise in mortgage rates, combined with continued house price appreciation, is increasing monthly mortgage payments and quickly affecting homebuyers’ ability to keep up with the market,” Khater said.
Homebuyers race to secure rates
Rates are already hurting buyers on the edge.
The volume of mortgage applications for home purchases decreased 2% from one week earlier, according to the Mortgage Bankers Association survey for the week ending March 18, with certain government-backed loans favored by first-time buyers seeing the largest declines in applications.
“First-time homebuyers, who rely on these government programs, are increasingly challenged by both the rapid increase in home prices and higher mortgage rates,” said Mike Fratantoni, MBA’s senior vice president and chief economist.
For instance, in just two weeks, the payment on a $400,000 house — now approximately the median price — has jumped from $1,500 at 3.85% to $1,606 at 4.42%, over $100 more, according to estimates using Bankrate's mortgage calculator. In the first week of January that payment would have been $1,387, or $219 less.
And that’s not factoring rising home prices or the challenge of finding a house to buy in the first place, two other major headwinds buyers face.
“It is difficult especially for first time homebuyers not only to find that home but to afford that perfect home,” Jessica Lautz, vice president of Demographics and Behavioral Insights at the National Association of Realtors (NAR), told Yahoo Money. “So there is a very tight market, we’re seeing increased competition perhaps as people are trying to lock in rates.”
‘Refinancing chances may be over’
The brief rush in traditional refinancing activity in recent weeks has all but dried up as rates rise.
The volume of refinance applications decreased 14% from the previous week, according to the MBA, with the refinance share of mortgage activity decreasing to 44.8% of total applications from 48.4% the previous week.
“The refinancing chances may be over,” Lawrence Yun, chief economist of the National Association of Realtors, recently told Yahoo Finance Live.
At 4.42% only 2 million high-quality candidates could shave at least three-quarters of a point off their mortgage by refinancing, saving $312 per month, according to figures Black Knight provided Yahoo Money. That was three-quarters less than the 11 million who could at the start of the year, and down from 2.6 million candidates last week.
“It is no surprise that refinance volume has dropped by more than 50% compared to this time last year,” Fratantoni said.
‘Push toward 5%'
Mortgage rates are likely to continue their ascent, as the Fed plans to lift its benchmark interest rate up to six more times this year to tamp down inflation.
“The window of record-breaking mortgage rates has closed, and the road ahead points to a return toward mortgage rates more typical of the past two decades,” said George Ratiu, Realtor.com manager of economic research. “The main takeaway is that mortgage rates are likely to push toward 5% before the end of the year.”
Gabriella is a personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.