Mortgage Rates Hit 5%

While the move we have seen in mortgage rates this year has been historic, do not forget that we started near historic lows. Cheap money will not always be available, and the move in mortgage rates, while not predicted to be so quick, was expected. Here is what to expect as mortgage rates hit 5%

One of the most accurate statements we have gotten about the mortgage rate market from last year from Mark Fleming, Chief Economist at First American:

“You know, the fallacy of economic forecasting is: Don’t ever try and forecast interest rates and or, more specifically, if you’re a real estate economist mortgage rates, because you will always invariably be wrong.”

Where We Expected Rates To Be

Coming into 2022, almost every expert predicted that we would see a gradual increase in mortgage rates. However, very few predicted how high they would go, and how quickly they would go that high. While it is only April, mortgage rates shattered even the most bullish of rate predictions. Freddie Mac announced that the 30-year fixed-rate mortgage is hovering above 4.7%. This is almost double what some projections had for mortgage rates in the whole year. According to Danielle Hale, Chief Economist at realtor.com,

“Continuing on the recent trajectory, would have mortgage rates hitting 5% within a matter of weeks. . . .”

Fun fact: just a week later, on April 5th, 2022, mortgage rates hit over 5%. This is the highest rates that we have seen in close to a decade. This comes off the heels of the 10-year treasury yield hitting 2.9%, or the highest level since 2018. While mortgage rates do not follow the 10-year treasury, they are correlated. Check out our article on the correlation between 10-year yields and mortgage rates.

Mortgage Rates Hit 5% Unexpectedly

No one would have seen this mortgage rate move coming. However, few economists did predict that we would see a historical move upward in 2022. After years of essentially free money when factoring wage growth and inflation, that period had to come to an abrupt end. Now, economists and buyers alike are wondering what has happened to the market in 4 months. However, even as mortgage rates top 5%, there has been little impact from mortgage rates on demand. According to Ali Wolf, Chief Economist at Zonda,

“Mortgage rates jumped much quicker and much higher than even the most aggressive forecasts called for at the end of last year, and yet housing demand appears to be holding steady.”

When We Will See The Impact

Through the end of February, home prices, showings, and the number of homes receiving multiple offers saw substantial increases. However, the spike in mortgage rates occurred mostly in March. This will take months to see the true impact on demand, as buyers start to get washed out due to higher borrowing costs. The housing numbers for March will likely not come out until early May, and still could show strong demand as the rates were still increasing.

Rick Sharga, EVP of Market Intelligence at ATTOM Data, recently said this about rising rates:

“Historically low mortgage rates and higher wages helped offset rising home prices over the past few years, but as home prices continue to soar and interest rates approach five percent on a 30-year fixed rate loan, more consumers are going to struggle to find a property they can comfortably afford.”