Mortgage rates hit 5.78 percent in record spike

Interest payments for the U.S. benchmark 30-year fixed rate mortgage saw the largest one-week upward movement in 35 years, hitting 5.78 percent as of Thursday.

The rate jumped more than half a percentage point in the last week and is nearly double what it was a year ago, according to government-backed mortgage lender Freddie Mac.

That means a monthly mortgage payment on a roughly median-valued $400,000 home, after a 20 percent down payment, would now be $1,874. Last year, the monthly payment on the same home would have been $1,335 — a difference of more than $500.

The spiking mortgage rate comes as the Federal Reserve announced this week its own 75 basis point hike in the federal funds rate, which determines the lending rates used by financial institutions.

The uptick was higher than the 50-basis point hike the Fed had originally signaled as part of the central bank’s battle against inflation, which stands now at 8.6 percent, a 40-year high.

The higher mortgage rates “are the result of a shift in expectations about inflation and the course of monetary policy,” Sam Khater, chief economist with Freddie Mac, said in a statement.

“Higher mortgage rates will lead to moderation from the blistering pace of housing activity that we have experienced coming out of the pandemic, ultimately resulting in a more balanced housing market,” Khater said.

The latest data on the 15-year fixed rate mortgage puts it at 4.81 percent, up from 2.24 percent this time last year. The 5-year adjustable rates mortgage hit 4.33 percent this week, up from 2.52 percent last year.

Mortgage rates are translating into diminished home sales as well as reduced home construction rates as the housing market cools off in the wake of the broader economic recovery from the pandemic.

The Mortgage Bankers Association (MBA) trade group reported this week that their purchasing index is 16 percent lower than it was a year ago and home refinancing is more than 70 percent lower since last year.

“MBA is forecasting that mortgage rates are likely to plateau near current levels,” MBA economist Mike Fratantoni said in a statement. “The financial markets have attempted to price in the impact of Fed actions over this cycle, and they are likely also pricing in the economic slowdown that will result. Once we are past this rate spike and associated volatility, MBA expects that potential homebuyers may be more willing to re-enter the market.”

New home construction dropped by 14.4 percent in May from April and is down 3.5 percent since last year, according to the U.S. Census Bureau. Single-family new home construction fell 9.2 percent on the month.