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Mortgage rates have reached 5.27 %, the highest since 2009

This week, the mortgage rates increased again, trying to reach their highest level since 2009.

The hikes came in the week leading up to the Federal Reserve's widely anticipated announcement on Wednesday that it would step up its fight against the worst inflation in 40 years by raising its benchmark interest rate by a half-percentage point and signaling that more large rate hikes are on the way. The Fed's action, which is it's most aggressive since 2000, will raise borrowing costs for individuals and businesses, including mortgages, credit cards, auto loans, and other forms of debt.

The 30-year rate increased to 5.27 % on Thursday, up from 5.1 % last week, when it fell after seven weeks of increases, according to mortgage buyer Freddie Mac. In comparison, one year ago, the average rate was 2.96 %.

The average rate on 15-year fixed-rate mortgages, which are popular with homeowners refinancing, increased to 4.52 percent from 4.4 percent last week.

Homeownership has become more attainable, especially for first-time buyers, with inflation at a four-decade high, rising mortgage rates, rising home prices, and a tight supply of homes for sale.

According to several economists, home sales could drop by as much as 10% this year compared to 2021 levels.

Mortgage rates have reached 5.27 %, the highest since 2009
Image: Adroiturban

Fed policymakers noted in a statement released after their two-day meeting on Wednesday that Russia's invasion and the war on Ukraine are worsening inflation pressures by rising oil and food prices. According to the Fed's preferred metric, inflation hit 6.6 percent last month, the highest level in four decades. A combination of high consumer spending, chronic supply bottlenecks, and sharply higher gas and food prices has accelerated it.

Then there's the issue of rising housing costs. A $300,000 mortgage would cost $1,660 per month at the current 30-year average, $377 more than at the end of last year.

"While housing affordability and inflationary pressures pose challenges for potential buyers, house-price growth will continue but will slow in the coming months," said Sam Khater, Freddie Mac's chief economist.

According to data released this week by the National Association of Realtors, families spent 18.7% of their income on mortgage payments in the first quarter, up from 14.2% a year ago.

"Buyers who don't have enough money saved for a large down payment risk being priced out of the market," said Joel Berner, senior economic research analyst at Realtor.com. "Unfortunately, this is happening at a time when national rents are at an all-time high, making saving more difficult for first-time homebuyers."

Purchases are being hampered by a shortage of inventory. According to Matthew Pointon, senior property economist at Capital Economics, a crash in home sales is unlikely due to pent-up demand from recent years and a growing share of cash buyers.

The Associated Press and Bloomberg contributed to this report.

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