Last week mortgage rates jumped to their highest level since 2011, signaling a shift from a time of very cheap loans to a higher rate environment that could negatively impact first-time buyers and slow home price appreciation.

The average rate for a 30-year fixed-rate mortgage rose to 4.61% last week from 4.55% last week, according to data released Thursday by mortgage-finance giant Freddie Mac. The jump this year reflects an abrupt departure from a long period of declining rates that began during the financial crisis.

Rates bottomed out in late 2012 at 3.31% and rose to 3.99% as recently as January. The spike this year has been faster than many economists predicted as a surging economy, the prospect of wage gains and a steep rise in prices for commodities such as lumber and gasoline stir up inflation worries.

In a Realtor.com article written by Laura Kusisto and Christina Rexrode, the concern among economists is that higher rates will prompt homeowners to keep their low-rate mortgages rather than trade up for better properties. As rates approach 5%, the risk of the phenomenon known as rate lock grows, economists said.

A one percentage point increase in rates can lead to a reduction in home sales of 7% to 8%, according to Lawrence Yun, chief economist at the National Association of Realtors. The recent increases in home prices and mortgage rates could especially hurt first-time and moderate-income borrowers, economists said.

The article goes on to say that until now, price gains have shown little sign of slowing. The S&P CoreLogic Case-Shiller National Home Price Index, which measures typical home prices across the nation, rose 6.3% in February, up from a 6.1% year-over-year increase in January.

What might seem like a small increase in mortgage rates can have a big effect on monthly payments. A 4% rate on a $250,000 loan translates to a monthly payment of $1,194, according to LendingTree Inc., an online loan information site. At 5%, the monthly payment would go up to $1,342, excluding taxes and insurance.

The monthly increase is more pronounced on higher-priced homes. According to LendingTree, a 4% rate on a $500,000 loan would create a monthly payment of $2,387. At 5%, the monthly payment would swell to $2,684.

The yield on the 10-year Treasury note, which tends to influence the 30-year mortgage rate, has been rising even more steeply recently. The yield on the 10-year Treasury note edged above 3.1% this week, its highest close since 2011.

Moreover, the Federal Reserve has signaled it will raise short-term rates three to four times this year and potentially three times next year. Mortgage purchase applications fell 2% in the week ended May 11, the fourth straight weekly decrease, according to the Mortgage Bankers Association.

While in a typical market buyers can simply choose to buy a smaller, less expensive home that is a challenge in today’s market because inventories are near all-time lows. “The problem in today’s market is there aren’t many affordable homes on the market. Buyers have less wiggle room,” said Nela Richardson, chief economist at Redfin.

Related Reading:
Mortgage Rates in Florida – FL Home Loans | Zillow: https://www.zillow.com
Tampa Bay homes prices soar by double-digits in January: www.tampabay.com
It’s not clear how mortgage rates 2018 will impact the housing market: https://www.domainhomes.com