CLEVELAND, Ohio – Mortgage rates continue to rise and banks are adjusting after the Federal Reserve’s most aggressive rate hike since 2000. The side effect could be a drop in purchasing power for people looking of a dwelling.
The national average interest on a 30-year fixed rate mortgage was 5.27% on Thursday, down from 5.10% last week and up from 2.96% a year ago, according to Freddie Mac, a government-sponsored mortgage lender.
A 15-year fixed mortgage is at 4.52%, down from 4.4% last week and 2.3% at the same time last year.
“Mortgage rates resumed their ascent this week as the 30-year fixed rate hit its highest level since 2009,” said Sam Khater, chief economist at Freddie Mac. “While housing affordability and inflationary pressures pose challenges to potential buyers, house price growth will continue but is expected to slow in the coming months.”
At 5.27%, a 30-year mortgage payment for a $150,000 home loan would be $830. That’s $15 more per month than last week, or $5,400 over the life of a loan.
At the rate of 2.96% observed a year ago, the same payment would have been $629. These numbers do not include property taxes, home insurance or other home buying costs that are factored into the monthly payments.
The increase comes after the Federal Reserve raised its short-term rate to a range of 0.75% to 1% on Wednesday, the highest point since the start of the COVID-19 pandemic.
The Federal Reserve sets the rate that institutions charge each other for short-term loans. This cost ripples through the economy and affects mortgages, CD rates, personal loans, and other types of loans.
KeyBank. The PNC and Huntington Bank, for example, all raised their prime rates to 4% after the Federal Reserve rate hike. The prime rate is given to the bank’s most trusted lenders. Both had prime rates at 3.5% before the Federal Reserve hike.
The Federal Reserve raised rates in March and is expected to raise them several times to fight inflation. In a press release, PNC chief economist Gus Faucher said rates would likely rise through 2022 and into 2023.
“Higher interest rates across the economy will eventually lead to slower growth in consumer spending, especially on big-ticket items, and business investment, as well as a weaker housing market” , said Faucher. “But the FOMC has a tough job ahead. Their hope is to raise interest rates enough to slow economic growth and reduce inflationary pressures, but not so much as to cause a recession – an outright contraction of the US economy.