Mortgage rates surge, capping fastest rise since 1994

Mortgage rates last week jumped to their highest level in more than three years, which could bring the housing market frenzy to a close.

The contract rate on a 30-year fixed-rate mortgage shot up to 4.8 percent in the week ended March 25 from 4.5 percent a week earlier, the Mortgage Bankers Association reported. That was the largest one-week increase since February 2011, and it brought mortgage rates to their highest level since December 2018.

Rates have now climbed by nearly 1.5 percentage points since the start of the year, the most rapid increase since 1994. However, mortgage rates were at all-time lows a few months ago, and remain relatively low by historical standards.

Rates have been steadily rising for the past few weeks. In its March 16 report, the MBA said the 30-year rose to 4.27 percent from 4.09 percent. The next week, it was up to 4.5 percent. Now, it’s 4.8 percent.

That means at the beginning of a month, a borrower putting 20 percent down on a home costing $406,000 — the median price for a house — could expect to pay $1,959 monthly on a mortgage. Today, it would be $2,130.

(The rates are for fixed-rate mortgages with conforming loan balances, meaning $647,200 or less. Rates for jumbo loans are traditionally higher, but at the moment are 40 basis points lower.)

The industry is watching closely how buyers react to the rising rates. Some home shoppers accelerated their plans and increased their bids in an effort to close on a loan before rates went higher still. Higher rates mean higher monthly costs for borrowers, and figure to tamp down home prices eventually, but that hasn’t happened yet.

“Even with the ongoing climb in rates, purchase application volumes were little changed last
week,” said Mike Fratantoni, MBA senior vice president and chief economist. “This is particularly auspicious, as we are now in the beginning of the spring homebuying season, and those shopping for homes are struggling with not only higher and more volatile mortgage rates, but also an ongoing shortage of homes on the market.”

But there are signs of change. Mortgage applications decreased 6.8 percent from one week earlier, probably because of rising mortgage rates and home prices and the paucity of listings.

With rates rising, fewer owners are refinancing. The MBA’s refinance index decreased 15 percent from the previous week and was 60 percent lower than the same week one year ago. Only 40.6 percent of mortgage applications last week were for refinancing, down from 44.8 percent last week.

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(iStock / illustration by Ilya Hourie for The Real Deal)