Mortgage rates jumped again this week, extending a steep climb that is shutting some would-be homebuyers out of the market.

The average for a 30-year loan was 5.3%, up from 5.27% last week and the highest since July 2009, Freddie Mac said in a statement Thursday.

Rates tracked yields for 10-year Treasuries, which last week reached 3% for the first time since 2018. US consumer prices rose more than forecast in April, signaling the Federal Reserve will need to be aggressive in its efforts to contain inflation. As the Fed raises benchmark interest rates, mortgage costs are expected to follow.

In what’s traditionally the housing market’s busiest and most competitive season, higher rates will put more pressure on buyers to seal deals before loans get even more expensive. Others are delaying home searches after calculating that they can’t afford bigger mortgage bills.

At the current 30-year average, a borrower with a $600,000 mortgage would pay $3,332 a month, $768 more than at the end of last year.

House hunters hurting

The many cash buyers in the market, including downsizers and property investors, aren’t rate sensitive, so they’ll continue to make purchases even as first-time buyers pull back, said Greg McBride, chief financial analyst at Bankrate.com.

“The run up of mortgage rates since beginning of the year has the same impact on affordability as an increase in home prices of more than 20%,” McBride said. “It will certainly temper demand as many would-be homebuyers are priced out. But rising rates won’t turn this into a buyer’s market as long as inventory remains as low as it is.”

Adjustable-rate mortgages are becoming more popular as a cheaper option. Last week, ARMs — with variable interest rates that reset based on the market at predetermined times — accounted for the biggest share of home-loan applications since 2008, data from the Mortgage Bankers Association show.

The current average for five-year ARMs is 3.98%, Freddie Mac said, up from 3.96% last week.

An increase in mortgage applications last week showed buyers remain undeterred — despite rising mortgage rates, according to the Mortgage Bankers Association.

“Homebuyers continue to show resilience even though rising mortgage rates are causing monthly payments to increase by about one-third as compared to a year ago,” said Sam Khater, Freddie Mac’s chief economist.

Several factors are contributing to this continued demand, he said, including the large wave of first-time homebuyers looking to buy. Plus, the spring is typically the peak buying season.

“In the months ahead, we expect monetary policy and inflation to discourage many consumers, weakening purchase demand and decelerating home price growth,” said Khater.

Fed focus

Last week the Fed announced it would raise the federal funds rate by half a percentage point, the biggest jump since 2000, in a bid to curb inflation.

“Mortgage rates continued their climb in response to the Federal Reserve’s increase in the target rate,” said Joel Berner, Realtor.com’s senior economic research analyst.

The Fed governors and the Biden administration have set their sights on reducing inflation, Berner said. But with the consumer price index — a key inflation indicator — remaining high and the major stock market indexes continuing a week-long slide, “the dirty word on the lips of American economists and financiers is ‘recession.’“

As long as regulators are focused on stemming inflation, a significant drop in mortgage rates is not expected to happen. For homebuyers, that means challenges will continue to mount as listing prices remain at record highs and the number of homes for sale hover near historic lows.

“The rising cost of living and falling value of investments make saving for a down payment more difficult, and higher mortgage rates make borrowing for a home more expensive,” said Berner.

Some buyers are getting priced out of the market altogether ahead of the busy summer season, he said, taking some pressure off of listing prices.

There are some early indications of a price slowdown, said Berner. In each of the past two months, the percentage of listings that have cut their listing price has been increasing compared to a year ago.