Mortgage Rates Just Hit 5%. Buying a Home Has Become a Lot More Expensive

Here’s a not-so-fun fact: The monthly mortgage payment it takes to buy the typical home in the U.S. is now up by a staggering 55 percent compared with the start of last year. That’s because of the dramatic rise in mortgage rates in recent weeks on top of price gains in the hot housing market.

“It’s pretty insane,” says Nick Cacciatore, who’s looking to buy a house in Tampa, Fla. “It’s very demoralizing.”

Back when Cacciatore was looking last summer, mortgage rates were under 3 percent. This week they’ve risen to over 5 percent. While that may not sound like much, it makes a huge difference when you’re buying something as costly as a house. And Cacciatore was looking for homes in the price range of $600,000.

“It added like $700 a month in monthly payments,” he says. “I mean, a ridiculous amount just from the interest rates.” And that doesn’t even factor in the big gain in prices over the past year as he’s been trying to buy a home.

Cacciatore is a lawyer starting a family practice. His fiancé is a veterinarian. So they have good jobs and some savings.

But in this superheated housing market, they kept getting outbid. Now with the higher mortgage rates, they’re looking at smaller, less expensive condos.

Some first-time buyers are giving up completely.

“It’s pretty much gotten them out of the market,” says Gabriela Raimander, a real estate agent in St. Petersburg, Fla. She says she was just talking to a client the other day. “She told me with watery eyes,” Raimander says, ” ‘I just can’t compete in this market. My dream of owning a house will have to be postponed or shelved altogether.’ ”

Here’s how the numbers look for the typical home in the U.S.: The median price for a home has risen from $309,200 in December 2020 to $357,300.

Over that same period, interest rates rose from 2.67 percent to 5.08 percent this week. With a 10 percent down payment, that has pushed the monthly payment up from $1,124 to $1,742 — a whopping 55 percent increase. That’s upwards of $600 a month on that $357,000 home. That’s the impact of higher prices together with rising rates.

If you look at interest rates alone — the 2 percent rise in interest rates we’ve seen so far adds $115 to the monthly payment for every $100,000 you borrow on a 30 year loan.

Online searches for ‘homes for sale’ is down

The price shock is already having an effect on homebuyers.

Already, online searches for homes for sale are down 10 percent year over year, according to Daryl Fairweather, chief economist at real estate brokerage firm Redfin. The number of people going to look at homes is down a bit too.

“So we’re seeing some very early signs that buyers are responding to these higher mortgage rates,” Fairweather says.

Higher mortgage rates might finally cool the hot housing market

It might not be a bad thing. Finally, the overheated housing market might cool down, bringing an end to the frenzied buying and bidding wars.

A slowdown in demand could help give homebuilders time to catch up. A record low supply of homes is a big reason prices have risen so much during the COVID-19 pandemic.

“I think home price appreciation will significantly cool off,” says Fairweather. “We’re going to have a year of pretty flat home price gains in real terms.”

That’s, of course, exactly what the Federal Reserve is trying to do for the broader economy by raising interest rates. The Fed wants to cool off rising prices and inflation by making it more expensive to borrow money.

Still, it’s unclear how much higher mortgage rates are going to go. Unlike rates on credit cards or other types of loans, mortgage rates move early and dramatically in anticipation of what the market expects, for example, the Federal Reserve to do with rates and its bond purchases over the next year. So mortgages could top out around this point, or they could keep rising.

In the Seattle area, Alex Bacon is not waiting around to find out.

“We are really, really excited to move,” she says. Bacon and her husband are getting ready to sell their very small starter house, which they bought about five years ago. It was all they could afford, and it’s directly under the flight path of Seattle’s airport.

“I’m just off the end of one of the runways, so the air just smells of jet fuel,” she says. “I can’t have people over for a barbecue because every time you have a conversation, you have to pause for 30 seconds in the middle of your thought,” she says, because a 747 is roaring over her backyard.

After the pandemic, Bacon realized she can work remotely. She’s a project manager at a medical technology company. So the couple’s plan was to eventually move two hours north to a smaller, more affordable town and buy a bigger house that’s not next to an airport.

But with rates rising, they’re hurrying up. They’re packing boxes and moving as soon as they can buy that house.

“We’re starting to see rates around 5 percent, and I’m just so afraid that if they get too much higher, we won’t be able to afford the house we want up there,” she says.

Their current house has gained a lot in value the past few years, even with the airplanes.

That would be the case for anyone who already owns a home. They are in a much better situation than a first-time homebuyer, because when they sell their home, they will likely have a nice pile of money for a down payment on a new place.



Housing Supply Fixes, Financial Assistance for Homebuyers, Renter Protections Part of Omnibus Housing Bill

Increasing and maintaining the housing supply, providing financial assistance to homebuyers, renter protections and reducing the racial homeownership gap are key priorities in the omnibus housing bill.

The House Housing Finance and Policy Committee on Tuesday heard a walkthrough of a delete-all amendment to HF4376 and took public testimony. The committee plans to vote on the proposal Wednesday.

Sponsored by Rep. Alice Hausman (DFL-Falcon Heights), the bill would appropriate $230 million in fiscal year 2023 and establish a $185 million base in the next biennium toward several programs.

“Many, many people have been involved in this conversation,” Hausman said. “This bill makes historic housing investments and takes major strides in addressing some of the state’s most pressing housing issues.

The bill would provide the following funds in fiscal year 2023:

  • $100 million for a community stabilization program;
  • $50 million for a first-generation homebuyers down payment assistance fund;
  • $20 million for a development and housing challenge program;
  • $14 million for family homeless prevention and assistance programs;
  • $10 million for the housing trust fund account;
  • $10 million for the Homework Starts with Home program;
  • $7 million for local housing trust fund grants;
  • $5.19 million for a manufactured home park cooperative purchase program;
  • $5 million to provide gap financing to rental housing development;
  • $5 million for the strengthening supportive housing model program;
  • $2 million for a lead-safe homes grant program;
  • $1 million for a stable housing mediation grant program; and
  • $1 million for a homeownership, education, counseling and training program.

[MORE: View the spreadsheet]

The bill would modify or establish several new policies and programs.

It would expand eligibility for the Homework Starts with Home program to include minor children, and it would include the so-called “Dustin Luke Shields Act” that would establish a grant program to nonprofits and political subdivisions to provide lead testing and lead remediation in certain rental housing.

Minnesota Housing would be authorized to issue up to $400 million in housing infrastructure bonds.

The bill would also change laws regarding housing infrastructure bonds. It would expand the list of bond usage for acquisition, rehabilitation and construction of housing affordable to households at or below 50% of the area median income with a priority on projects for households below 30%. Up to 20% of units funded by the bonds in senior housing would be required to serve individuals of any age with intellectual or developmental disabilities. Housing funded by the bonds with more than four units would be required to include physical and sensory units.

Renter protections are included, such as a provision to adopt a heat code of 68 degrees, have certain landlord entry restrictions, prohibit source of income discrimination and make changes to pre-eviction notice requirements and eviction expungements.

Testifying on behalf of Minnesota Housing, the agency’s assistant commissioner for policy and community development, Ryan Baumtrog, praised the bill while adding that more down payment assistance is needed.

“We know that the state housing crisis requires consistent, ongoing and higher levels of funding and I think that’s represented well in the House’s position,” Baumtrog said. “Overall, the funding levels, in many cases, are at the governor’s funding levels or exceed. Would note that a number, the majority, of the governor’s recommendations and specific programs are funded either in whole or partially. Just want to acknowledge and appreciate the house’s commitment to those programs.”

The Senate’s omnibus housing bill, SF3994, sponsored by Sen. Rich Draheim (R-Madison Lake), was folded into the omnibus agriculture bill, SF4019, in the Senate Finance Committee and is headed to the Senate Floor.


What’s in the bill?

The following are select bills incorporated in part or in whole into the omnibus housing bill:

House’s Omnibus Tax Bill Proposes $1.6 Billion in Tax Cuts and Credits

There will be cuts.

The omnibus tax bill presented to the House Taxes Committee on Tuesday does make significant tax cuts in dozens of areas, which has been a hot topic around the Capitol this session. Whether it has as many as desired by many legislators remains to be seen.

But HF3669, as replaced by a delete-all amendment, would result in $1.6 billion in tax reductions and credits in the 2022-23 biennium, according to the Department of Revenue. Sponsored by Rep. Paul Marquart (DFL-Dilworth), the bill was introduced and given a walkthrough Tuesday, with public testimony planned for Wednesday and amendments considered Thursday.

Total General Fund tax revenue collected after the tax code changes made in the bill is estimated to be $54.6 billion in the 2022-23 biennium, with aids, credits and property tax refunds returned to taxpayers expected to be about $4.2 billion.

“There’s nothing in the tax bill that I heard widespread objections on,” Marquart said. “It certainly is a bipartisan bill. I think there are about 20 GOP provisions in the bill, which I think is very important.

“One of the committee’s goals was how could we really make a difference in people’s lives, and improve the quality of life for our families, our workers, our senior citizens? We also talked a lot about the recovery and rebuilding from COVID-19. How we can address the workforce shortage? And I think you’ll find that all of those goals were met.”

Here are some of the biggest changes to state tax law in the bill:

If you’re a renter: The renter’s credit would be converted into a refundable income tax credit, effective for 2022 refunds. The measure of income used to calculate the credit would be simplified, and, as a result of the conversion, renters would claim the credit as part of their individual income tax return — which is generally due April 15 — with refunds paid out on the same schedule as other income tax refunds. The Department of Revenue estimates that the change would decrease General Fund revenue by $372.6 million in fiscal year 2023, the single largest fiscal impact in the bill. The bill would also establish a local affordable housing aid to be administered by counties.

If you have children: The bill would provide an income tax rebate of $325 per child, structured as a refundable credit, for children ages 16 and younger. It would apply to those with federal adjusted gross income of $140,000 or less. It would also temporarily allow larger credits for dependents under the age of 5, a change that would affect about 186,000 families.

If you receive Social Security benefits: A 100% subtraction would be provided for taxable Social Security benefits for taxpayers with adjusted gross incomes up to $75,000 (married filing jointly) or $58,600 for other filers. It would affect about 250,000 filers at an average reduction of $470.

If you’ve received unemployment compensation: The bill would allow an income tax subtraction for up to $10,200 per person of unemployment compensation received in 2021 for those with federal adjusted gross income under $150,000. It’s expected to affect 267,000 tax filers at an average subtraction of $603.

If you have student loans: The maximum student loan credit would increase from $500 to $1,400, affecting about 43,000 filers.

If you pay property taxes: The bill has several property tax provisions, including some that would increase the school building bond agricultural credit rate, the value thresholds for the homestead market value exclusion, and the income limit for the senior citizens’ property tax deferral program. It would also increase the homestead credit state refund, and allow property owners to qualify for homestead with an individual tax identification number.

Something for everyone: There are provisions that could potentially influence the lives of every Minnesotan. Such as increased funding for local government aid and county program aid that could increase the amount of state money going to municipalities and counties. Between them, the two programs would receive $137 million more for fiscal year 2023 than under the current formula. The bill would also establish a soil and water conservation district aid.

Other provisions in the bill would:

  • conform the state tax code to the federal Internal Revenue Code as amended through Dec. 31, 2020;
  • increase the additional or “targeting” property tax refund;
  • allow taxpayers who file with an individual taxpayer identification number to claim the working family credit;
  • provide a temporary, general construction sales tax exemption for materials used in projects for local governments, schools, nonprofits, and other entities;
  • establish a capital equipment exemption for equipment used to produce prepared food and beverages;
  • establish or modify sales tax exemptions for county fairs, the National Sports Center in Blaine, farm fencing, occasional sales of single-member LLCs, fiber and conduit for broadband, and the Minnesota State High School League;
  • increase the angel credit allocation in tax year 2022 by $7 million;
  • extend the sunset for the historic structure credit to 2030 and allow taxpayers to take the credit in one lump sum;
  • allow tiered partnerships to pay the pass-through entity tax and to allocate 100% of resident income when calculating the tax;
  • provide credits for customers impacted by a polar vortex;
  • change the distribution of the taconite production tax;
  • provide income tax subtractions for COVID business assistance programs; and
  • provide funds to counties for economic aid to businesses and rental assistance.

Under the bill, residents of 12 municipalities and two counties would be authorized to create, modify or extend local sales and use taxes; special tax increment financing authority would be provided to five cities; two more would gain authority for new local lodging tax provisions; and tourism improvement districts would be created.

The bill’s companion is SF3692, sponsored by Sen. Carla Nelson (R-Rochester). It awaits action by the Senate Taxes Committee.


What’s in the bill?

Here are some of the bills that are included in whole or in part in the omnibus tax bill:

MNOSHA Safety Grant Program

Program qualifications

The Safety Grant Program awards funds up to $10,000 to qualifying employers for projects designed to reduce the risk of injury and illness to their workers.

Employer conditions

To qualify, an employer must meet the following conditions.

  • Has been in business for at least two years.
  • Has at least one employee to create the employer/employee relationship.
  • Has workers’ compensation insurance.
  • Has had an on-site hazard survey conducted by a qualified safety professional and a written report of the findings and recommendations to reduce the risk of injury or illness to employees, including for:  specific safety practices or equipment; training for purchased equipment; and tuition reimbursement. A qualified safety professional includes:
    1. a Minnesota OSHA Compliance investigator;
    2. a Minnesota OSHA Workplace Safety Consultation consultant;
    3. an in-house safety and health committee (note:  safety committee meeting minutes that document discussion of the hazard survey must accompany the written hazard survey);
    4. a workers’ compensation insurance underwriter (note:  an underwriter may sign-off on a loss-control representative’s written hazard survey to meet this qualification);
    5. a private consultant; or
    6. a person under contract with the Assigned Risk Plan.
  • Has the knowledge and experience to complete the project and is committed to its implementation.
  • Is able to complete the project within 120 days of a fully executed contract.
    • A fully executed contract is signed by all parties.
    • No project can begin before a contract is signed by all parties.
    • Invoices dated before the date of the fully executed contract will exclude those items from grant eligibility.

Project conditions

To qualify, the project must be supported by all public entities involved and comply with federal, state and local regulations where applicable.

Costs eligible for program participation are all or part of the cost of:

  • purchasing and installing recommended safety or health equipment; training for purchased equipment;
  • tuition reimbursement; the cost of operating or maintaining safety or health equipment; and
  • purchasing or renting real property, if necessary, to meet criteria established by the on-site safety and health survey.

The costs of automobiles, weapons or personnel (such as salary and benefits) will not be covered by these grants.

About the process

Businesses that are the current focus of the Minnesota OSHA Workplace Safety Consultation strategic plan will be given added priority.

If your grant is approved, you will be notified in writing of the specific approval. Whether we approve your grant application or not, in no way diminishes, delays or absolves you of any obligation to abate safety and health hazards.

When a project is complete, the applicant must submit a certificate of completion form, with invoices and proof of payment, to the grants administrator, to initiate issuance of the grant.

An employer that has received a grant for a particular worksite will not be eligible to receive another grant for that worksite during the two years after the date of their award.

More information