Mortgage Rates Hit Their Highest Level Since the Pandemic Started

While still low from a historical perspective, mortgage rates have hit their highest level since May 2019.

The average 30-year fixed rate mortgage, according to FreddieMac, recently hit 3.9%, the highest it's been since May 2019. With the Federal Reserve signaling that it will raise interest rates in March, home buyers can expect mortgage rates to continue climbing.

The median home-sale price jumped close to 16% in the past year, and the average monthly rent has increased by around 14%. Rising rents and the potential increase in interest rates have pushed many renters to buy a home.

Supply at 50-year low

According to FreddieMac, the number of entry-level homes is at a five-decade low. Starter homes -- properties of 1,400 square feet or less -- accounted for 40% of new construction in 1980. In 2020, starter homes accounted for only 7% of new construction.

With home prices' continued rise coupled with a dwindling supply of homes, affordability is becoming a substantial issue for home buyers.

Rates still at an all-time low

After interest rates hovered around 3% for the past two years, home buyers may be startled to see mortgage rates at 4%. However, mortgage rates have returned to pre-pandemic levels -- and from a historic perspective, they're still at a low.

Mortgage rates averaged 8.1% in the 1990s, and 6.3% from 2000 to 2009. Mortgage rates dropped in 2010 due to the Great Recession, and again in 2020 due to the pandemic. The current increase in mortgage rates, up less than half a percentage point from the beginning of the year, is minor compared to where rates stood 15 years ago.

Should you buy?

The rise in interest rates has made home buyers more aggressive in making offers. Interest rates are likely to continue rising as the Fed begins its first series of interest rate hikes in March. If rates keep going up, it could make it more difficult for would-be homeowners to afford a home.

Buying a home should be based on your personal financial situation. Even with mortgage rates and rents rising, it's important not to rush into overpaying for a home or purchasing a home you can’t afford. Prospective homeowners need to consider property taxes, maintenance fees, homeowners insurance, and other expenses of home ownership. It’s important to not let mortgage rates alone dictate your decision to buy a home.