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U.S. Mortgage Rates Surge to the Highest Level in More than Two Years

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(Bloomberg) — Mortgage rates in the U.S. jumped to the highest level since January 2020, before the pandemic rocked financial markets.

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The average for a 30-year loan was 3.69%, up from 3.55% last week, Freddie Mac said in a statement Thursday. That was the highest since Jan. 2, 2020, when rates averaged 3.72%.

Borrowing costs resumed their upward climb after holding relatively steady for about a month. They tracked a surge in yields for 10-year Treasuries, which approached 2%. Stubbornly high inflation and an unexpectedly strong jobs report for January are likely to clear the way for the Federal Reserve to lift benchmark interest rates, which may make mortgages more expensive.

While rising rates may discourage some buyers, they may spur others to jump into the market before costs get even higher. With home prices climbing and inventory at record lows, the challenge will be finding anything affordable.

With inflation red-hot, the Fed will be forced to act aggressively, according to Melissa Cohn, a banker and regional vice president at William Raveis Mortgage.

“You’re dealing with two runaway trains: Real estate prices are going crazy and rates are going crazy at the same time. It does not portend well for the first-time homebuyer,” Cohn said. “If you buy, then you’re probably going to have to compromise, either by buying a smaller house or by stepping out of the market and waiting for things to calm down.”

Even without the recent jump, mortgage payments for fijumped to 25.6% of household incomes in the fourth quarter, the worst affordability rate in three years, data from the National Association of Realtors show.

At the current average for a 30-year loan, the monthly payment on a $300,000 mortgage would be $1,379. That’s up from $1,209 a little more than a year ago, when rates hit a record low of 2.65%.

(Updates with data from Realtors group in penultimate paragraph.)

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