Mortgage Rates Skyrocket at Fastest Pace Since 1994

HOUSTON – (By Michelle Leigh Smith for Realty News Report) – Mortgage rates, rising at the fastest pace in 28 years, have hit 4.72 percent, Freddie Mac reported in its latest survey of 30-year, fixed-rate mortgages.

The 30-year mortgage has passed 5 percent in some markets and higher rates are expected to come soon. A year ago, 3 percent mortgages were prevalent.

“Mortgage rates have increased 1.5 percentage points over the last three months alone, the fastest three-month rise since May of 1994,” said Sam Khater, Freddie Mac’s Chief Economist. “The increase in mortgage rates has softened purchase activity such that the monthly payment for those looking to buy a home has risen by at least 20 percent from a year ago.”

The pool of prequalified buyers may find itself at a shallower depth as the Federal Reserve tightens to diminish inflation.

Houston Realtors are finding a new sense of urgency as buyers step up the pace to buy before rates grow.

“Many are concerned over the rising interest rates; however, I believe it’s a good thing for the red-hot housing market, Texas a major metro especially,” notes Cortney Burns, Managing Broker Houston Realty Company. “We have experienced almost two years of an exceptional market consisting of higher priced properties and an ultra-fast paced market. I say higher mortgage rates are just what’s needed to cool things down a bit and possibly make the arena more of a “fair market,” in belief the higher rates may slow demand a bit and temper home prices.

“Mortgage rates tend to rise and fall alongside the interest rates set by the Federal Reserve, which has indicated it will raise rates a total of seven times this year to 1.9% by year’s end to tame inflation,” says Burns. “I am in hopes the higher mortgage interest rates are eventually expected to slow housing price growth either keeping some home buyers within the market and or allowing new buyers to buy.”

Historically, mortgage rates hit the all-time high in 1981, when the average 30-year mortgage hit 16.6 percent.

After a recession hit about 15 years ago, the Federal Reserve moved to push interest rates down to create economic recovery.

Mortgages remained low for years, making home buying affordable. Mortgages at 3 percent were widely available.

But inflation hit the US economy last year and accelerated in 2022. Last month, the Fed moved to raise rates.

Amy Bernstein, President of Bernstein Realty, understands the security and confidence a home brings and that it cannot be overstated – especially as far as what that does for a child’s life. “Higher interest rates have been a reason many buyers are anxious to buy today, so they can make a purchase prior to any more increases,” says Bernstein. “I personally have not seen any buyers get out of the market due to higher interest rates, as they are still so low, and a nice opportunity for buyers to make purchases with low rates and comfortable monthly payments. I am dating myself, but my first home purchase was at 16.5 percent, so in my mind, these rates are still fantastic for homebuyers!”

“The rise of interest rates has gotten the attention from many buyers who were considering making a home purchase, but were not in an immediate hurry to do so,” she observes. “Many of these buyers have now entered into the market with the goal of purchasing a home before rates go up any higher.

“The buyers in the market with a sales price of $1,500,000 and below seem to be the most active due to rising interest rates, so they do not lose the opportunity to purchase with these low rates.

“Many buyers easily get frustrated after making offers on homes and finding themselves in bidding wars, only to get outbid by offers that are made well over the asking price,” says Bernstein. “In my opinion, many of these buyers would step out of this market and wait for the frenzy to settle down, but due to low interest rates, and the concern of them rising, they stick with it, in hopes of contracting for their new home.

“It may be all the buzz right now, but I do not think the higher interest rates will impact the market as significantly as expected,” says Philip Alter, with Martha Turner Sotheby’s International Realty. “It will take a little time, but the buyers will settle down and get used to the new normal. Historically the interest rates are still low and the flow of purchases will continue as long there is good inventory.”

What broader impacts do higher mortgage rates have on the market?

“Actually, there were 2 and 7/8% refi rates available as recently as early February and today 30-year conventional is at 5.07%,” says Tim Connolly, CEO of Corporate Strategies LLC, Merchant Bankers. “We believe the rate acceleration is the highest in many years and the fed has only raised rates by .25% so far—the rest of the increase is anticipation of increases by the Fed and the tightening of the money supply that starts next month.”

“However, we also believe that rates will peak in 2022 and start softening with the overall economy in 2023,” says Connolly.

“It is reasonable to anticipate that rising interest rates coupled with inflationary pressures on labor and materials will have a cooling effect on new home sales,” says David M. Mincberg, Managing Principal at Flagship Capital Partners. “With the advent of higher prices on newly constructed homes and the corresponding reduced ability of families to purchase a home, rental rates will increase significantly over the next few years.”

“Buyers are buying!” says Lisa Barnes, Broker and Agent with Coldwell Banker. “Multiple offers on many of the homes listed. The inflow of out of state buyers is impacting demand. Inventory is low and demand is steady as we enter another spring real estate market.

“Buyers are still buying but with rates and housing prices both moving higher a number of buyers will not able to participate,” says Frank Ferrara,Senior Loan Officer at Republic State Mortgage. “The rise in rates was rather rapid which most definitely affected the refinance market. It appears the FED is still behind the eight ball when it comes to getting a grasp on inflation and rates.”

Freddie Mac reported the 4.72 percent average 30-year fixed rate mortgage for the week ending April 7 was up from 4.67 last week. A year ago the average was 3.13 percent.

The 15-year fixed-rate average was 3.91 percent up from 2.42 percent a year ago.

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