Homebuyers feeling squeezed in the current real estate market are in for more pain as the Federal Reserve's efforts to tame scorching-hot inflation are pushing mortgage rates toward 6%.
According to Freddie Mac, the average rate on a 30-year fixed mortgage is 5.81%, the highest level since November 2008 and up 3.02% from a year ago. Last week, the average 30-year fixed-rate mortgage hit 5.78%, the largest weekly increase since 1987.
Meanwhile, the average rates for a 15-year fixed-rate mortgage and 5-year Treasury-indexed hybrid adjustable-rate mortgage are now 4.92% and 4.4%, respectively.
On Thursday, the Mortgage Bankers Association reported that the national median mortgage payment was $1,897 in May, up from $1,889 in April and $1,736 in March. Payments have increased $513, or 37.1%, in the first five months of the year.
The latest data comes as existing home sales fell to a seasonally adjusted annual rate of 5.41 million in May, down 3.4% from the previous month. On a year-over-year basis, existing home sales receded 8.6%. The median existing home price for all housing types in May was $407,600, up 14.8% from May 2021, as prices increased in all regions.
"Fixed mortgage rates have increased by more than two full percentage points since the beginning of the year," Freddie Mac Chief Economist Sam Khater said in a statement. "The combination of rising rates and high home prices is the likely driver of recent declines in existing home sales. However, in reality, many potential homebuyers are still interested in purchasing a home, keeping the market competitive but leveling off the last two years of red-hot activity."
Total housing inventory was at 1.16 million units as of the end of May, up 12.6% from April but down 4.1% compared with the previous year. Unsold inventory sits at a 2.6-month supply at the current sales pace, up from 2.2 months in April and 2.5 months in May 2021.
Last week, the Federal Reserve raised its benchmark interest rate by 75 basis points for the first time in nearly three decades. The move puts the key benchmark federal funds rate at a range between 1.50% to 1.75%, the highest since the pandemic began two years ago.
Officials also laid out an aggressive path of rate increases for the remainder of the year. New economic projections released after the Fed's two-day meeting showed policymakers expect interest rates to hit 3.4% by the end of 2022, which would be the highest level since 2008.
Fed Chairman Jerome Powell told reporters at a press conference following the recent meeting that another increase of 75 basis points or 50 basis points is on the table for the Fed's July meeting.
Goldman Sachs, Bank of America and Deutsche Bank have all raised the odds of an economic downturn in 2022 or 2023.
FOX Business' Megan Henney contributed to this report