Mortgage rates just hit 5%. Here's how much more expensive that makes home ownership

Higher mortgage rates and home prices have pushed the monthly payment to buy the median-priced home in the U.S. up more than 50% since the start of last year. Many first-time buyers can't afford it.

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Mortgage rates are up. They just hit 5%, which is on top of a very big jump in home prices during the pandemic. When you combine those two, many people are being priced out. Here's NPR's Chris Arnold.

CHRIS ARNOLD, BYLINE: Here's a not-so-fun fact. The cost of the monthly mortgage payment to buy the median-priced home in the U.S. has jumped up a staggering amount - more than 50% compared to the start of last year. That's the combined effect of higher home prices and mortgage rates.

NICK CACCIATORE: It's pretty insane. It's disappointing.

ARNOLD: Nick Cacciatore is looking to buy a house with his fiancee around Tampa. He's a lawyer starting a family practice. She's a veterinarian. But in this superheated housing market, they keep getting outbid.

CACCIATORE: It's like you get a punch in the stomach every time because it's like, what's going to be good enough - $60,000 over asking, $100,000 over asking?

ARNOLD: Actually, he did offer $100,000 over asking on a $500,000 home.

CACCIATORE: They said no.

ARNOLD: Back when he started looking, mortgage rates were under 3%, but now they're up around 5%.

CACCIATORE: With the increase in interest rates, it added, like, $700 a month in monthly payments - I mean, a ridiculous amount just from the interest rates.

ARNOLD: As a result, the couple is now looking at smaller, less expensive condos. Some first-time buyers are giving up completely.

GABRIELA RAIMANDER: It's pretty much gotten them out of the market.

ARNOLD: Gabriela Raimander's a realtor in St. Petersburg, Fla. She was just talking to a client the other day.

RAIMANDER: She told me, like, you know, with watery eyes - I mean, tears in her eyes - it's like, you know, I just - I can't compete in this market. My dream of owning a house will have to be postponed or shelved altogether. So, yeah, it's pretty sad.

ARNOLD: On the plus side, though, this price shock is likely to cool off the housing market and calm down the frenzied buying and the bidding wars. Daryl Fairweather is the chief economist at Redfin.

DARYL FAIRWEATHER: Yes, I think home price appreciation will significantly cool off. We're going to have a year of pretty flat home price gains in real terms.

ARNOLD: That's what the Federal Reserve is trying to do for the broader economy. It's raising interest rates to cool off rising prices and inflation. And Fairweather says already there is a decline in the number of people going to look at houses.

FAIRWEATHER: That's down 16 percentage points from last year. And online searches for homes for sale were down 10% year over year. So we're seeing some very early signs that buyers are responding to these higher mortgage rates.

ARNOLD: It's unclear how much higher mortgage rates are going to go, which is why in the Seattle area, Alex Bacon is not waiting around.

ALEX BACON: Oh, yeah. We are really, really excited to move.

ARNOLD: Bacon and her husband are getting ready to move out of their very small house that they bought about five years ago. It was all they could afford back then, and it's directly under the flight path of Seattle's airport.

BACON: I'm just off the end of one of the runways, so the air just smells of jet fuel. I can't have people over for a barbecue because every time I try to have a conversation, you have to pause for 30 seconds in the middle of your thought.

ARNOLD: 'Cause there's, like, a 747, like, literally over your head, just, like, roaring over.

BACON: Yeah.

ARNOLD: After the pandemic, Bacon realized she can work remotely. She's a project manager at a medical technology company. So she and her husband's plan was to eventually move 2 hours north to a small town and buy a bigger house that's not next to an airport. But with rates rising, they're doing that right now, packing boxes and moving as soon as they can buy that house.

BACON: We're starting to see rates around 5%. And I'm just so afraid that if they get too much higher, we won't be able to afford the house that we want.

ARNOLD: Their current house has gained a lot in value the past few years, even with the airplanes. So anybody who already owns a home still likely has a nice pile of money for a down payment if they want to buy a new place.

Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.