Mortgage payments have soared 85% in just three years thanks to Fed rate hikes
Zachary Halaschak
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The median payment on a mortgage for a new home has exploded in the past three years as the Federal Reserve has hiked interest rates in response to blistering inflation.
In March, the median monthly payment sat at nearly $2,100, according to data compiled by the Mortgage Bankers Association. That is a massive increase, more than 85%, from the $1,128 level median payments were at in April 2020.
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Over the past decade, the cost of a median monthly mortgage payment has grown by about 130%.
The rising costs are a result of the Fed’s rate hikes. The housing market was red-hot during much of the pandemic after the central bank cut its target rate to near-zero levels, but since the Fed began hiking last year, mortgage rates have soared.
During the summer of 2021, at the peak of the housing market boom, rates for a 30-year fixed-rate mortgage hovered around an ultra-low 2.8%. As of Thursday, the average rate has more than doubled, growing to 6.39%, according to Freddie Mac.
House prices, though, have not fallen correspondingly.
The net result is that housing is far less affordable, and demand for new mortgages has fallen. Mortgage applications decreased by 1.2% for the week ending April 28, according to the MBA. Additionally, the Refinance Index was 51% lower than the same week one year ago.
“Elevated rates continue to both impact homebuyer affordability and weaken demand for refinancing,” said Joel Kan, MBA’s vice president and deputy chief economist, on the release of the data.
While new home sales rose in March, a sign of stabilization in the market, sales are still down by a large margin from the peaks notched during the pandemic. The housing market is in what most economists characterize as a recession, and there continues to be fear that the downturn is a harbinger for a broader economywide recession.
Sales of existing homes declined in March and are down a whopping 22% from the year before. Existing-home sales fell by 2.4% in March to a seasonally adjusted annual rate of 4.44 million, according to a recent report by the National Association of Realtors.
The median price of an existing home in March was $375,700, a decline of 0.9% from the year before.
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The central bank announced this week that it would raise its interest rate target by a quarter of a percentage point.
The central bank’s key overnight rate is 5% to 5.25%. Rates are now the highest they have been since 2007, at the outset of the global financial crisis.