Rising Mortgage Rates Throw Complicated Wrench in Market

Mortgage rates on a 30-year loan just clocked in at 4.72%, the highest since 2018, reports the Wall Street Journal. That's up from 3% last summer, which translates into a quite a dent in prospective homeowners' wallets, notes NPR. "It added like $700 a month in monthly payments," says one potential buyer looking in the $600,000 range. "I mean, a ridiculous amount just from the interest rates." Factor the higher rates in with a steady rise in housing prices over the last year, and the upshot is that someone taking out a mortgage would have a monthly payment roughly 55% higher today compared to a year ago, per NPR.

Of course, there's a flip side to the rising rates: They appear to be causing sellers to finally begin lowering prices, reports CNBC. About 12% of homes on the market saw a price drop in the month ending April 3, up from 9% a year ago. It's a sign that fantastically rising prices might be reaching their limit, and all of the above could translate into the red-hot housing market cooling off. "The general view of the housing market is that it’s still positive—we have an economy that’s still extremely strong," Joel Kan of the Mortgage Bankers Association tells Politico. However: "The demand is there, but you add on the affordability challenges, increasing rates, that obviously acts in the other way."

Still, it could take several months for the trend to clarify, and demand is expected to remain high in the meantime. "“The buyers who are in the game, they believe rising interest rates could be the last chance to get in," Lawrence Yun, chief economist for the National Association of Realtors, tells the Journal. Another long-term factor at play: If the market cools off, that could allow home builders to catch up with demand, notes NPR. Generally, the supply of homes on the market has been at record lows over the last year or two, a big factor driving the surge in prices. (More mortgage rates stories.)