US mortgage rates cross 5% for first time in a decade

What does the sharp uptick in mortgage rates mean for the housing market?

US mortgage rates cross 5% for first time in a decade

The 30-year fixed mortgage rate has reached the 5% mark, hitting its highest level in more than 10 years as inflation continues to soar.

Freddie Mac's weekly primary mortgage market survey showed that the average 30-year fixed-rate mortgage jumped to 5% as of April 14 from 4.17% the week prior. A year ago, the benchmark mortgage rate was just 3.04%.

"This week, mortgage rates averaged 5% for the first time in over a decade," said Sam Khater, Freddie Mac's Chief Economist. "As Americans contend with historically high inflation, the combination of rising mortgage rates, elevated home prices and tight inventory are making the pursuit of homeownership the most expensive in a generation."

The 15-year fixed-rate mortgage averaged 4.17%, up from 3.91% last week and 2.35% during the same period last year. The 5-year Treasury-indexed hybrid adjustable-rate mortgage increased 13 basis points to 3.69% and was 89 basis points higher than a year ago.

Read next: Consumer homebuying sentiment falls to a new survey low

The steady rise in mortgage rates has dimmed consumers' outlook on homebuying. Fannie Mae's Home Purchase Sentiment Index revealed that 73% of respondents in March feel that now is a bad time to buy a home. Mortgage rates and home price expectations also worsened, with 69% of Americans anticipating rates to go up in the next 12 months and 48% of consumers expecting a continued rise in home prices.

Early this month, most Fed officials agreed to increase interest rates by 25 basis points to counter the highest inflation in four decades. Some officials believed a 50-basis point hike might be more appropriate if inflation remained well above the committee's target.

Read more: Fed interest rate hike official: reaction

"We believe the Fed will act aggressively to combat rising prices, meaning a 50-basis point hike in the federal funds rate and the commencement of the balance sheet runoff are both likely in May,” said Nathaniel Drake, quantitative modelling associate at Fannie Mae’s Economic and Strategic Research (ESR) Group.

“We've stated previously that the exact impact of policy tightening on long-term rates is difficult to predict, but thus far, the Fed's more hawkish tone has prompted an unusually sharp jump in mortgage rates,” he added.

"This is likely to weigh dramatically on housing activity this year and slow home price growth, and we are likely to downgrade our forecasts for new and existing home sales."