As consumers and businesses grapple with the fallout from elevated inflation and the most aggressive FOMC tightening in over 40 years, home values have surprised most investors to the upside with national median prices for existing homes less than 1% lower than the all-time high of $413,800 registered last June. Indeed, mortgage rates have soared since the Federal Reserve started raising interest rates last March, with the average rate for a 30-year, fixed loan hitting 7.16% last week according to Mortgage Bankers Association data, the highest contract rate since December 2001. While today’s rate environment would not appear to be supportive of such home price resilience, the rapidity and absolute size of this cycle’s jump in mortgage rates have served to depress both demand and supply in offsetting fashion, stabilizing prices and further eroding already rock-bottom affordability. Regarding the payment impact of higher mortgage rates, monthly payments on a $600,000 mortgage at today’s rates would run nearly $4,100, up from $2,600 per month just prior the start of the current tightening cycle early last year. To be sure, this meteoric rise in financing costs has sharply slowed demand, with home purchase applications reaching the second lowest level since 1995 last week.
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