Mortgage Rates Top 4% for the First Time Since 2019

Home-lending costs had been rising ahead of the Federal Reserve’s decision Wednesday to raise rates for the first time since 2018. And while the Fed’s quarter-point move didn’t affect Freddie Mac’s weekly average of 4.16%, recorded before the central bank’s announcement, it is likely to send rates even higher. Mortgage rates are closely tied to the yield on the 10-year U.S. Treasury, which tends to rise in tandem with the Fed’s benchmark rate.

Rising borrowing costs pose another challenge for would-be homeowners already facing soaring home prices. An average rate around 4%, while still historically low, is sharply higher than the sub-3% rates that were available for much of last year. And the last time the 30-year mortgage rate topped 4%, the median home price was $277,000—26% lower than it is today.

The monthly payment on a $375,000 home with an interest rate of 4% is $220 higher than the payment on a similarly priced home would have been in December 2020, when rates were near record lows, according to Realtor.com data. With a 20% down payment, that would add $79,200 to a 30-year mortgage. News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.

Higher rates have started to dent demand for mortgages used to buy homes. Applications for purchase mortgages fell 3.9% in February compared with the same month last year, according to the Mortgage Bankers Association.

But demand is down less than expected, economists said, in part because there is so little inventory. At the current sales pace, there was a record-low 1.6-month supply of homes on the market in January, according to the National Association of Realtors.

“There are still a lot of people who can afford to absorb these higher rates, maybe people with some generational wealth or equity gained from previous transactions,” said Selma Hepp, deputy chief economist at CoreLogic.

Rising rates will make it harder for homeowners to save money by refinancing. The pool of borrowers who could lower their monthly payments by refinancing fell to about 4 million in February, down from close to 18 million in February 2021, according to mortgage-data firm Black Knight Inc.

A steep decline in refinancings is expected to drag total single-family mortgage originations down by almost 38% in the first quarter compared with the same period last year, Fannie Mae said.

Write to Orla McCaffrey at [email protected]