Homebuyers hit by record mortgage rate hike

The average 30-year fixed mortgage rate hit 5.78% on Thursday, the metric’s biggest one-week increase since 1987, marking the latest blow to housing affordability for Long Islanders.

The average rate hit its highest level since 2008, according to mortgage giant Freddie Mac, which polls lenders to produce the weekly survey.

The Federal Reserve on Wednesday raised its key rate by three-quarters of a percentage point in an attempt to slow consumer price growth. Fed rate hikes, while not directly related to mortgage rates, may increase the cost of borrowing for consumers and businesses. It was the largest such increase since 1994. Lenders typically respond to Freddie Mac’s survey Monday through Wednesday, so some of the responses do not reflect the Fed’s announcement.

It’s important for borrowers to understand that the Fed doesn’t set mortgage rates and its actions this week didn’t dictate the rise, said Quentin Hardy, market leader at Movement Mortgage, a direct lender, in Huntington. In fact, the Fed’s ability to control inflation will be key to stabilizing rates, he said. Last month, consumer prices in the United States rose 8.6% from May 2021, and prices in the 25-county region that includes Long Island rose 6.3% during that time.

“As long as inflation continues unabated or worsens, we can certainly expect rates to follow that for some time,” Hardy said.

There’s also no single mortgage rate, and factors such as loan size, borrower’s down payment and creditworthiness can affect rates, he said. Despite the rate hike, Hardy thinks potential borrowers should consider the long-term effects owning a home can have on their net worth when deciding whether or not to wait for a home purchase. .

“I always ask them, ‘What are you waiting for? What are you waiting for?” he said. “Since all the indicators are that the value of the houses is going to keep going up, you’re going to wait six months or a year to buy the house. that you are currently considering at a reasonable price. higher price.”

Hardy is skeptical that home prices will budge, given the near-record number of homes for sale on the island. This shortage is forcing Long Island home buyers to contend with both rising home prices and rising borrowing costs.

These examples, created using Bankrate.com’s Mortgage Calculator, illustrate the impact of these two factors on monthly payments for a home at the median price over the past 12 months:

A buyer buying a home for the median sale price of $635,000 in Nassau County in May 2021, with a 20% down payment and a mortgage rate of 2.96% — the average 30-year fixed home loan rate at the time – reportedly paid $2,130 a month in principal and interest.

If the same buyer had applied the same down payment, $127,000, to buy a home at the median price in Nassau in May, $686,000, at that month’s average mortgage rate of 5.23%, the monthly payment would have jumped to 3 $079, an increase of $949. . Taxes and insurance, which vary by domicile and community, are not included in the calculations.

In Suffolk County, a buyer buying a home at the median sale price of $555,000 last month would pay $833 more per month for principal and interest if they used the same down payment as a year ago. , when the median price was $499,000 and mortgage rates were more than two percentage points lower.

“Higher interest rates [buyers’] purchasing power since more of their monthly payment will be spent on interest,” wrote Nadia Evangelou, senior economist and director of forecasting at the National Association of Realtors, in a comment posted Thursday. “That means buyers can afford fewer homes than they could at the start of the year.”

Buyers looking for homes checked whether the rate changes had affected the amount they could borrow, said Zahra Jafri, president and founder of Lynx Mortgage Bank in Westbury.

“For some, the increase is acceptable and they can keep looking,” Jafri said. “For some borrowers, they need to somehow modify their search, change the prices, or maybe consider putting an extra down payment.”

Jafri said rising rates of more than 2.5 percentage points this year is the fastest she’s seen in her 30-year career in the mortgage industry. For Long Islanders who can afford to buy a home, she thinks rising mortgage rates will slow recent record house price increases, with fewer sellers receiving more than their asking price.

“This home buying frenzy that we knew will level off,” Jafri said. “It will not be so much a seller’s market. it will move a little more [to the] Buyer.”

She said she expects mortgage rates to hit the “high six” by the end of the year.

Mortgage rates were historically low. The average 30-year fixed rate since 1971 was around 7.8% until April 2022.

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