Rising Mortgage Rates Mean Higher Payments

Over the past few months, mortgage rates have risen faster than at any point since the early 1980s. At the beginning of the year, the average rate on a 30-year fixed rate mortgage was around 3.25%. Last week, according to Freddie Mac, rates surged to 5.78%, up a half percentage point from just a week earlier. And some other sources put current average rates well above 6%.

Rapidly increasing mortgage rates have caused monthly mortgage payments to spike. Nationally, a typical buyer who is purchasing with a 5% down payment now has a monthly payment that is $549 higher than it was a year ago. In the mid-Atlantic region, the increase has been somewhat higher. The monthly payment for the median-priced home in the region was $1,473 in May 2021. Fast-forward a year—prices have continued to rise at double-digit rates and mortgage rates are up by more than two percentage points, and the typical monthly payment is now $648 higher, an increase of 44.0%.

During the pandemic, historically low mortgage rates kept monthly payments relatively stable, even as home prices were rising quickly. Now, both prices and rates are rising, which is pushing some buyers out of the market and cooling home sales activity.

Median Home Prices and Monthly Payments in the Mid-Atlantic

Falling Rates Kept Payments Stable Over the Past Few Years…But No Longer

Source: Bright MLS, Freddie Mac. Assumes a 5% down payment, 1.5% closing costs, a 30-year fixed rate loan, and a payment that is no more than 28% of income.

Prospective buyers who were able to qualify for a loan may find that they are now unable to qualify, given the higher rates. Making purchasing even more difficult is persistently high inflation, which has made it harder to save for a down payment as higher prices for gas, food, and everything else are taking a bigger bite out of families’ budgets.

Payments are up in local markets across the mid-Atlantic region but the biggest impact have been felt in communities here prices have been rising the most quickly. For example, in Camden County, NJ home prices have risen more than 22% over the past year and the typical monthly payment is now $605 more than it was a year ago, a 61% increase. In many suburban and exurban counties, demand for housing surged during the pandemic, sending prices to record highs. Now, mortgage payments are surging as well. In Harford County, MD, outside of Baltimore, the typical monthly payment rose by $725 between May 2021 and May 2022, an increase of 56%.

Looking Ahead

Higher rates will continue to cool buyer demand. The Bright MLS T3 Home Demand Index, which incorporates data on pre-sales activity, including showings, as well as agent and public online views of properties, indicates that buyer interest has pulled back sharply across many local markets. Expect price growth to moderate in the weeks and months to come as the competitive frenzy of the past two years moves firmly behind us.

To stay informed about housing market conditions, be sure to make use of Bright’s housing market reports and get a preview of future buyer activity by tracking the Bright MLS T3 Home Demand Index for the Philadelphia, Baltimore, and Washington DC regions.

 

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Dr. Lisa Sturtevant serves Bright MLS as the nation’s only MLS-focused economist. She leads research, reporting and insights from Bright’s comprehensive array of real estate data. In 2021, Bright’s over 100,000 subscribers facilitated $142B in real estate transactions through its system stretching across 6 states and the District of Columbia.