Mortgage rates climbed back above 5.5% this week, following the trend of the 10-year Treasury yield. According to Freddie Mac, the 30-year fixed mortgage rate rose to 5.55% from 5.13% the previous week. While rates are nearly three percentage points higher than a year ago, buyers need to spend about $720 more monthly for the median-priced home.
Apart from rising mortgage rates, home prices continue to show double-digit year-over-year gains. The median-priced home is worth about $40,000 more than a year earlier. While both home prices and mortgage rates increase the borrowing cost for prospective buyers, the impact of higher mortgage rates is three times larger on the monthly mortgage payment. Specifically, within the last 12 months, all else equal, the monthly mortgage payment rose by $510 due to the increase in mortgage rates. However, higher home prices pushed up the mortgage payment by $150. It seems that a one-percentage-point increase in mortgage rates has the same impact on the mortgage payment as if home prices rise by 13 percentage points.