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Mortgage rates just hit 5%. Here's how much more expensive that makes home ownership
Here's a not-so-fun fact: The monthly mortgage payment it takes to buy the typical home in the U.S. is now up by a staggering 55% compared with the start of last year. That's because of the dramatic rise in mortgage rates in recent weeks on top of price gains in the hot housing market.
"It's pretty insane," says Nick Cacciatore, who's looking to buy a house in Tampa, Fla. "It's very demoralizing."
Back when Cacciatore was looking last summer, mortgage rates were under 3%. This week they've risen to over 5%. While that may not sound like much, it makes a huge difference when you're buying something as costly2 as a house. And Cacciatore was looking for homes in the price range of $600,000.
"It added like $700 a month in monthly payments," he says. "I mean, a ridiculous amount just from the interest rates." And that doesn't even factor in the big gain in prices over the past year as he's been trying to buy a home.
Cacciatore is a lawyer starting a family practice. His fiancée is a veterinarian. So they have good jobs and some savings3.
But in this superheated housing market, they kept getting outbid. Now with the higher mortgage rates, they're looking at smaller, less expensive condos.
Some first-time buyers are giving up completely.
"It's pretty much gotten them out of the market," says Gabriela Raimander, a real estate agent in St. Petersburg, Fla. She says she was just talking to a client the other day. "She told me with watery4 eyes," Raimander says, " 'I just can't compete in this market. My dream of owning a house will have to be postponed5 or shelved altogether.' "
Gabriela Raimander, a real estate agent in St. Petersburg, Fla., says most first-time homebuyers she works with are giving up. The combined impact of higher prices and mortgage rates is just making homeownership unaffordable for many.
Gabriela Raimander
Here's how the numbers look for the typical home in the U.S.: The median price for a home has risen from $309,200 in December 2020 to $357,300.
Over that same period, interest rates rose from 2.67% to 5.08% this week. With a 10% down payment, that has pushed the monthly payment up from $1,124 to $1,742 — a whopping 55% increase. That's upward of $600 a month on that $357,000 home. That's the impact of higher prices together with rising rates.
If you look at interest rates alone, the 2 percentage-point rise in interest rates we've seen so far adds $115 to the monthly payment for every $100,000 you borrow on a 3o-year loan.
Online searches for "homes for sale" is down
The price shock is already having an effect on homebuyers.
Already, online searches for "homes for sale" are down 10% year over year, according to Daryl Fairweather, chief economist7 at real estate brokerage firm Redfin. The number of people going to look at homes is down a bit too.
"So we're seeing some very early signs that buyers are responding to these higher mortgage rates," Fairweather says.
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Higher mortgage rates might finally cool the hot housing market
It might not be a bad thing. Finally, the overheated housing market might cool down, bringing an end to the frenzied8 buying and bidding wars.
A slowdown in demand could help give homebuilders time to catch up. A record low supply of homes is a big reason prices have risen so much during the COVID-19 pandemic.
"I think home price appreciation9 will significantly cool off," says Fairweather. "We're going to have a year of pretty flat home price gains in real terms."
That's, of course, exactly what the Federal Reserve is trying to do for the broader economy by raising interest rates. The Fed wants to cool off rising prices and inflation by making it more expensive to borrow money.
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Still, it's unclear how much higher mortgage rates are going to go. Unlike rates on credit cards or other types of loans, mortgage rates move early and dramatically in anticipation10 of what the market expects, for example, the Federal Reserve to do with rates and its bond purchases over the next year. So mortgages could top out around this point, or they could keep rising.
In the Seattle area, Alex Bacon is not waiting around to find out.
"We are really, really excited to move," she says. Bacon and her husband are getting ready to sell their very small starter house, which they bought about five years ago. It was all they could afford, and it's directly under the flight path of Seattle's airport.
Alex Bacon and her husband, Eli Leslie, at their current house, which is very close to Seattle's airport. "I'm just off the end of one of the runways, so the air just smells of jet fuel," she says. The couple is scrambling11 to find a house to buy before mortgage rates go much higher.
Alex Bacon
"I'm just off the end of one of the runways, so the air just smells of jet fuel," she says. "I can't have people over for a barbecue because every time you have a conversation, you have to pause for 30 seconds in the middle of your thought," she says, because a 747 is roaring over her backyard.
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During the pandemic, Bacon realized she can work remotely. She's a project manager at a medical technology company. So the couple's plan was to eventually move two hours north to a smaller, more affordable6 town and buy a bigger house that's not next to an airport.
But with rates rising, they're hurrying up. They're packing boxes and moving as soon as they can buy that house.
The couple wants to sell the current house and move two hours north, up near the border with Canada. The plan is to work remotely and be able to afford a bigger house that is not near an airport and that has space for home offices.
Alex Bacon
"We're starting to see rates around 5%, and I'm just so afraid that if they get too much higher, we won't be able to afford the house we want up there," she says.
Their current house has gained a lot in value the past few years, even with the airplanes.
That would be the case for anyone who already owns a home. They are in a much better situation than a first-time homebuyer, because when they sell their home, they will likely have a nice pile of money for a down payment on a new place.
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| n.抄本，誊本，副本，肄业证书 | |
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costly
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| adj.昂贵的，价值高的，豪华的 | |
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savings
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| n.存款，储蓄 | |
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watery
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| adj.有水的，水汪汪的；湿的，湿润的 | |
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postponed
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| vt.& vi.延期，缓办，（使）延迟vt.把…放在次要地位；[语]把…放在后面（或句尾）vi.（疟疾等）延缓发作（或复发） | |
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affordable
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| adj.支付得起的，不太昂贵的 | |
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economist
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| n.经济学家，经济专家，节俭的人 | |
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frenzied
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| a.激怒的；疯狂的 | |
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appreciation
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| n.评价；欣赏；感谢；领会，理解；价格上涨 | |
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anticipation
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| n.预期，预料，期望 | |
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scrambling
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| v.快速爬行( scramble的现在分词 )；攀登；争夺；（军事飞机）紧急起飞 | |
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