Average long-term US mortgage rates had their biggest one-week jump in 35 years with the Federal Reserve this week raising its key rate by three-quarters of a point in an effort to tame high inflation.
Mortgage buyer Freddie Mac reported on Thursday that the 30-year rate climbed from 5.23% last week to 5.78% this week, the highest its been since November of 2008 during the housing crisis.
Wednesday’s rate hike by the Fed was its biggest in a single action since 1994.
The brisk jump in rates, along with a sharp increase in home prices, has been pushing potential homebuyers out of the market. Mortgage applications are down more than 15% from last year and refinancings are down more than 70%, according to the Mortgage Bankers Association.
Those figures are likely to worsen with more Fed rate increases a near certainty. The Fed’s unusually large rate hike came after data released last week showed US inflation rose last month to a four-decade high of 8.6%.
The Fed’s benchmark short-term rate, which affects many consumer and business loans, will now be pegged to a range of 1.5% to 1.75% – and Fed policymakers forecast a doubling of that range by year’s end.
Higher borrowing rates appear to be slowing the housing market, a crucial part of the economy. Sales of previously occupied US homes slowed for the third consecutive month in April as mortgage rates surged, driving up borrowing costs for would-be buyers as home prices soared.
The online real estate broker Redfin, under pressure from the cooling housing market, said Tuesday that it was laying off 8% of its workers.
Homeownership has become increasingly difficult lately, especially for first-time buyers. Besides staggering inflation, rising mortgage rates and soaring home prices, the supply of homes for sale continues to be scarce.
The average rate on 15-year, fixed-rate mortgages, popular among those refinancing their homes, rose to 4.81% from 4.38% last week. A year ago, the rate was 2.24%.