When mortgage broker Jeff Lazerson quoted a 6% rate for a client this week, he thought it was a mistake. The last time 30-year rates were that high was late 2008, when policymakers plunged the world into an era of ultra-low rates to pull economies back from the brink.
“What a shocker!’” said Lazerson, president of Mortgage Grader Inc. in Laguna Niguel, California. “My sense is we’ll see a very nasty recession.”
Borrowing costs are swiftly approaching a potential tipping point for housing and the broader economy — an indicator of whether the Federal Reserve’s efforts to cool inflation will end with a soft or a hard landing. On Wednesday, the Fed announced a three-quarter point rate hike, the biggest since 1994.
For now, 30-year mortgage rates that have more than doubled from January 2021’s record low are deepening an affordability crisis that’s been building throughout the pandemic as home prices soared. Costlier loans are slowing property sales and pushing ownership out of reach for first-time buyers — a slip in demand that’s spurring layoffs at lenders and brokerages.
“By the time we report June numbers, I expect we’ll report housing affordability at an all-time low,” said Andy Walden, vice president for research at data provider Black Knight Inc. “For folks that have been in the housing market, their position is extremely strong. They’re sitting on record equity. Folks trying to get in that door — it has been extremely challenging over the last two years and it’s becoming even more challenging.”
Rates for 30-year mortgages averaged 5.78% this week, the highest since November 2008, Freddie Mac said Thursday.
Other measures have shown borrowing costs already passing the 6% mark.
In raising rates, the Fed has to thread the delicate needle of tamping down inflation without crushing the economy. When consumers feel good about the economy, their jobs and financial situation, they’re more inclined to make a major purchase like a home, which for many people is the biggest investment of their lives, said Danielle Hale, chief economist for Realtor.com.
For shoppers still in the hunt, higher loan costs are
forcing them to cut their maximum price ranges significantly, according to a study by Redfin Corp. When rates hovered around 3% at the beginning of the year, a buyer with a $2,500 monthly budget could afford a $517,500 home. That drops to $427,250 with a mortgage at 5.2%, the brokerage said.
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