Mortgage rates are surging at the fastest rate since 1987, pricing out more than 16 million potential homebuyers, in the latest dose of bad economic news for President Biden and Democrats ahead of the midterm elections.
The Federal Home Loan Mortgage Corporation announced Thursday that the interest rate on an average 30-year-fixed-rate mortgage had climbed in the past week from 4.72% to 5% — a rate unseen since early 2011.
Overall, mortgage rates have jumped 1.8 percentage points in the past three months, the fastest increase since 1987.
“This change added about $400 to the monthly mortgage payment for a median-priced home,” said Nadia Evangelou, a senior economist at the National Association of Realtors. “This means that potential buyers need to spend more of their budget … to buy the typical home.”
Mortgage rate increases are likely to fall hardest on lower- and middle-class families, especially first-time homebuyers, whose incomes have not kept up with inflation.
Economists note that when wages are adjusted for inflation, there has been a steady decrease in purchasing power across most income levels since Mr. Biden took office.
“Comparing inflation with real wage growth since 2008, this is the first time that inflation has risen so much faster than wages,” Mrs. Evangelou said. “With rising borrowing costs, expect about 16 million households to be priced out of the market this year.”
The National Association of Realtors and other industry groups forecast that home sales will drop roughly 10% this year.
A slowing real estate market is also likely to bleed over into the construction industry, which has seen a home building boom in recent months. Experts say that with the available supply of single-family homes already at a low, a cut in home purchasing and construction will exacerbate the affordability of housing.
“The speed at which rates are going up will cool the housing market by reducing demand. But that may only mean housing goes from sizzling to warm,” said Greg McBride, the chief financial analyst at the consumer financial service firm Bankrate. “Demand still exceeds what is a record-low level of supply.”
News of credit lenders raising mortgage rates comes as the inflation rate has soared to 8.5% in the past year. The Federal Reserve has responded by aggressively raising interest rates and signaling more increases are on the horizon.
Neither is particularly good news for Mr. Biden and Democrats. While inflation is eating away at the paychecks of American workers, higher interest rates are likely to trigger a recession and have other adverse effects, including making housing more expensive.
Democrats were already expected to lose seats this cycle, as the White House incumbent’s party historically has done poorly in its first midterm election. Political analysts say the troubling economic situation, however, could fuel a GOP landslide.
“People are always going to look for someone to blame for these kinds of economic issues,” said J. Miles Coleman, an elections analyst at the University of Virginia’s Center for Politics. “That happens to be the Democrats because they are in power now.”
There is already ample evidence that a majority of voters believe Mr. Biden and Democrats are responsible for their economic troubles.
A CBS/YouGov poll released over the weekend shows that 69% of U.S. adults across the country disapprove of Mr. Biden’s handling of inflation. That same poll found Mr. Biden hitting a new job approval low of 42% nationally.
The current economic situation could also doom Mr. Biden’s chances at reelection in two years. Most economists say the full impact of the Federal Reserve’s interest-rate increases will only become apparent by early-to-mid 2023.
The White House did not return requests for comment on this story.