Mortgage rates hit 5.78%, the biggest weekly jump since 1987

Mortgage rates jumped more than half a percentage point this week amid rising inflation and interest rate hikes by the Federal Reserve, according to Freddie Mac. This is the largest one-week increase since 1987.

The 30-year fixed-rate mortgage averaged 5.78% in the week ending June 16, down from 5.23% the previous week. Rates have risen more than two and a half percentage points this year. They were at an average of 2.93% at the same time last year.

“These higher rates are the result of a change in expectations about inflation and the course of monetary policy,” said Sam Khater, chief economist at Freddie Mac. “Rising mortgage rates will moderate the blistering pace of real estate activity that we have seen coming out of the pandemic, ultimately resulting in a more balanced housing market.”

Rates have risen sharply since January, driving up the cost of financing a home considerably.

Buyers are finding homes even less affordable as inflation takes more of their income and the cost of borrowing has reduced their purchasing power.

A year ago, a buyer who staked 20% on a home with a median price of $390,000 and financed the rest with a 30-year fixed rate mortgage at an average interest rate of 2.93% had a monthly mortgage payment of $1,304, according to figures from Freddie Mac.

Today, a homeowner buying a house at the same price with an average rate of 5.78% would pay $1,827 per month in principal and interest. That’s $523 more each month, according to figures from Freddie Mac.

The average mortgage rate rose this week in response to worse than expected inflation data last week and in anticipation of the Federal Reserve rate hikes that took place on Wednesday.

Keeping its promise to raise rates to stem inflation, the Federal Reserve raised the interest rate target by 75 basis points, the largest increase in nearly three decades. And there’s no reason to expect the increases to stop there. In comments following the announcement, Fed Chairman Jerome Powell underscored the Fed’s commitment to bringing inflation back to the 2% target by continuing to raise rates.

The Federal Reserve does not directly set the interest rates that borrowers pay on mortgages, but its actions influence them. Mortgage rates tend to follow 10-year US Treasuries. But mortgage rates are indirectly affected by the Fed’s actions on inflation. When investors see or anticipate rate hikes, they often sell government bonds, driving up yields and, with them, mortgage rates.

The yield on 10-year Treasury bills climbed to 3.48% on Tuesday – the highest in 11 years – as investors anticipated Wednesday’s interest rate hike.

Soaring interest rates have had the effect of slowing down the housing market, which has been advancing at full speed for the past two years.

“Rising mortgage rates continue to put pressure on the housing market, driving up the cost of homeownership,” said Hannah Jones, economic data analyst at Realtor.com. “There has been little relief for American consumers at the grocery store, at the pump and in the sale and rental markets.”

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