Mortgage rates reached a high that hasn’t been seen in longer than seven years when they inched up close to 5 percent on Wednesday (Oct. 11), reported The Wall Street Journal.
According to the report – which cited data from Freddie Mac, the mortgage finance company – the average rate on a 30-year, fixed-rate mortgage hit 4.9 percent on Wednesday (Oct. 11), marking the largest weekly increase in around two years. Rates near 5 percent could hurt the real estate market, with home buyers potentially reining in purchases due to the rising interest rates. That higher rate for mortgages even applies to people with stellar credit scores and those making a big down payment. The paper noted that a 5 percent rate isn’t high from a historical perspective, but home buyers have gotten used to the near-record lows that have prevailed since the Great Recession.
“There’s almost a generation that has been used to seeing 3 percent or 4 percent rates that’s now seeing 5 percent rates,” said Vishal Garg, founder and chief executive of Better Mortgage.
The paper noted that a home that has a $250,000 mortgage and a 5 percent rate will see an added $150 a month to their payments compared to a rate of 4 percent. Some economists told The Journal that with mortgage rates rising at the same time that home prices have been increasing, it could result in some sellers having to lower prices. In August, existing home sales were down compared to a year earlier, marking the sixth straight month in a row in which sales have declined.
“With the escalation of prices, it could be that borrowers are running out of breath,” said Sam Khater, chief economist at Freddie Mac.
Consumers aren’t the only ones who will be impacted by rising mortgage rates. They could also hurt lenders, particularly non-banks that don’t have other businesses to insulate them if they take on riskier customers to maintain their loan volume, noted the report. It could also prompt some lenders to find a buyer.