U.S. home buyers, already contending with escalating prices, now are getting hit with the most expensive mortgage rates in seven years. Funny thing: It's only making them move faster.
The average rate for a 30-year fixed mortgage jumped to 4.61%, up from 4.55% last week and the highest since May 2011, Freddie Mac said in a statement Thursday. And homes that sold last month went into contract after a median of 36 days on the market — a record speed in data going back to 2010, according to a new report by brokerage Redfin Corp.
"This is what happens when the economy is strong," Sam Khater, Freddie Mac's chief economist, said in a phone interview. "All the higher-rate environment does is it either causes them to try and rush or look at different properties that are more affordable."
The solid data that's boosting confidence in the economy has sent benchmark Treasury yields soaring, and home buyers — encouraged by income growth and low unemployment — are rushing to lock in loans before borrowing costs climb even higher. With a short supply of listings, the increased competition is only making their purchases harder to afford.
Home prices jumped 7.6% in April from a year earlier to a median of $302,200, and sellers got a record 98.8% of what they asked on average, Redfin said Thursday.
Bidding wars aren't uncommon. Mary Sommerfeld, a Minneapolis-area Realtor, said a family she works with offered $33,000 more than the $430,000 list price for a home in St. Paul. The listing agent gave her the bad news: There were nine offers, and the family's was second from the bottom.
For Sommerfeld's clients, the lack of inventory is a bigger problem than rising mortgage rates. If anything, they want to close quickly before they get priced out of the market — and have to pay more interest.
"I don't think it's hurting the buyer demand at all," she said. "My buyers say they better get busy and buy before the interest rates go up any further."
With this week's jump, the monthly payment on a $300,000, 30-year loan has climbed to $1,540, up from $1,424 in the beginning of the year, when the average rate was 3.95%.
Kristin Wilson, a loan officer with Envoy Mortgage in Edina, Minn., tells customers to keep things in perspective. When she bought a house in the early 1980s, the interest on her adjustable-rate mortgage was 12%, she said.