Mortgage rates climb to 5%, first time since 2011

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Mortgage rates are surging above 5 percent for the first time in more than seven years, adding a new challenge for potential home buyers.

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The average rate on a 30-year fixed-rate home loan hit 5.05 percent last week, according to the Mortgage Bankers Association (MBA). That’s up from 4.96 percent in the prior week and 4.16 percent a year ago.

It was the first time that rates surpassed 5 percent since February 2011, the MBA said. Rates on other mortgages, including 15-year and FHA loans, also set multiyear highs.

The rate on a 30-year fixed mortgage was 5 percent on Thursday, compared to a 52-week low of 3.93 percent, according to Mortgage News Daily. In data published Thursday, Freddie Mac said the average rate for a 30-year fixed mortgage has climbed to about 4.9 percent, the biggest weekly increase recorded by the lender in roughly two years.

Reacting to strong U.S. economic growth and rising inflation, the Federal Reserve has increased its benchmark short-term rate three times in 2018 and eight times since 2015. The central bank’s rate hikes put upward pressure on interest rates for mortgages, credit cards and other forms of lending, raising borrowing costs for consumers.

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Homes have become less affordable for many real-estate shoppers. Potential buyers already face sticker shock from prices that hit record highs earlier this year, driven by a shortage of homes for sale.

Home prices jumped 6 percent in the 12 months ending in July, according to the S&P CoreLogic Case-Shiller national index. The National Association of Realtors said sales of existing homes held steady at a seasonally adjusted rate of 5.34 million units in August, while inventory grew for the first time in three years. Existing-home sales recorded declines in the previous four months.

Borrowers with adjustable-rate mortgages should consider refinancing “right away” if their rates are set to change in the next one to two years, according to Greg McBride, senior vice president and chief financial analyst at Bankrate.com.

“Even with the run-up in fixed rates, you can still lock in a fixed rate lower than what your adjustable rate would jump to,” he said in a recent interview.

Despite an increase in mortgage rates, purchase origination volume is still on pace to register modest growth in 2018 amid robust housing demand, the MBA said Thursday. The group’s Builder Application Survey for September found that mortgage applications for new home purchases rose 8.2 percent year over year. Applications dropped 9 percent when compared to August.

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