Mortgage Rates Hit Nearly 3-Year High, Squeezing First-Time Buyers

PHILADELPHIA — The average rate on a 30-year fixed mortgage jumped to 7.28% this week, according to Freddie Mac, the highest level in nearly three years and the sharpest one-week increase in about four years.

It was the sixth straight week of increases. A year ago, the average rate was 6.34%.

For first-time buyers, the numbers translate quickly into monthly budgets. On a $400,000 loan, the climb from 5.98% in late February to today’s 7.28% adds roughly $276 to the monthly payment, based on figures widely reported this week. That kind of jump can decide whether a family qualifies for the home they want.

Mortgage rates have been climbing since the United States and Israel attacked Iran in late February, sending oil prices higher and feeding inflation fears. Rates tend to follow the 10-year Treasury yield, which has surged to its highest level in roughly two decades on strong economic data and persistent inflation.

“Mortgage rates increased for the sixth straight week, reaching a nearly three-year high,” said Bob Broeksmit, president and CEO of the Mortgage Bankers Association. “Affordability and borrower demand have weakened in recent weeks as the higher-rate environment continues to put pressure on both prospective homebuyers and homeowners looking to refinance.”

There is a counterweight building, and it favors prepared buyers. Sellers are starting to give ground. Realtor.com reported that 20.8% of September listings carried price cuts, the highest share in four years, while inventory crept back toward pre-pandemic levels.

“It is clear that higher rates this fall are leading to a pullback in demand,” said Lisa Sturtevant, chief economist at Bright MLS. “Sellers are having to adjust their pricing expectations and offer more concessions to buyers.”

Housing counselors say the current market punishes impulse and rewards preparation. The first step is a realistic budget built around the monthly payment rather than the listing price. Lenders generally want total housing costs held under 28% of gross monthly income, a bar that buys less house at 7.28% than it did a year ago.

Shopping lenders matters more than most buyers expect. Rates and fees vary widely, and comparing annual percentage rates across at least three lenders — then asking each to beat the others in writing — can save thousands over the life of a loan.

Credit scores deserve attention before house hunting begins. Even a modest improvement can move a borrower into a better rate tier. Paying down card balances helps, while opening new credit accounts during the search can hurt.

Borrowers should also understand discount points, the upfront fees that buy a lower rate. Points can pay off for buyers who plan to stay several years, and lenders should be able to name the breakeven month.

Adjustable-rate mortgages are drawing renewed interest, accounting for more than 10% of applications last week, according to the Mortgage Bankers Association. Their lower starting rates appeal to buyers planning to sell or refinance before the rate adjusts. Counselors caution that they are a poor bet for anyone counting on rates to fall on their own.

Down payment help goes underused. Loans backed by the Federal Housing Administration allow down payments as low as 3.5%. In Pennsylvania, the Pennsylvania Housing Finance Agency offers first-time buyer programs with down payment assistance that many eligible buyers never claim.

The broader advice from market watchers is patience without paralysis. Trying to time the bottom of the rate cycle has a poor track record. Buying a home that fits today’s budget leaves open the option to refinance if rates decline later.

In the Philadelphia region, buyers get one structural advantage. Home prices remain relatively affordable compared with New York or Washington, and state assistance can stack with federal programs. Free first-time buyer counseling is available through PHFA-approved counselors across the region.

“With mortgage rates on their current trajectory, the housing market continues to be supported by favorable economic conditions,” said Sam Khater, Freddie Mac’s chief economist.

For first-time buyers willing to do the homework, he suggested, the door is still open.