US mortgage rates hit 5% for first time since early 2011

[WASHINGTON] Mortgage rates in the US surged, reaching 5 per cent for the first time in more than a decade. The average for a 30-year loan jumped from 4.72 per cent last week, Freddie Mac said in a statement on Thursday (Apr 14). The last time rates hit 5 per cent was in February 2011.

Borrowing costs have been soaring since the start of the year, tracking the jump in yields for 10-year Treasuries. Last month, the Federal Reserve raised its benchmark rate and signalled more increases to come in an effort to slow inflation, which has accelerated to the fastest pace since 1981.

Higher mortgage rates are adding to pressure on would-be buyers in a market where purchase prices are still skyrocketing 2 years into the pandemic housing boom. While some people are putting off their searches after getting priced out, the supply of listings is so tight that bidding wars remain common. At 5 per cent, borrowers with a US$300,000 mortgage would pay US$1,610 a month. That is up US$327 from the end of last year when rates averaged 3.11 per cent.

The hit to buyer affordability since the beginning of the year is equivalent to an additional 20 per cent increase in home prices, said Greg McBride, chief financial analyst at Bankrate.com. "For homebuyers under age 35, a 5 per cent rate is uncharted territory," he said. "The speed at which rates are going up will cool the housing market by reducing demand. But that may only mean housing goes from sizzling to warm. Demand still exceeds what is a record-low level of supply."

Winning a home in the red-hot San Diego market requires big offers. But after successfully vanquishing the competition, 2 clients of mortgage broker Lisa Miller-Carnation surprised her by backing out. The mortgage payments - with this year's jump in rates - gave them sticker shock, she said.

One couple with a combined income of more than US$200,000 walked away from a US$793,000 single-family house with 3 bedrooms. On top of day care costs for 2 children, car payments and student loans, a US$4,600 mortgage bill was simply too much. They are now looking at lower-cost townhouses, said Miller-Carnation, a broker with Integrity Mortgage Group who also sells real estate. "We're starting to see a lot of fallout in the market," she said. BLOOMBERG