Mortgage rates just made the biggest jump this century

Historically low rates were nice while they lasted.

In another hit to prospective homebuyers, the average 30-year fixed mortgage rate hit 4.42% this week, up 1.31 percentage points from three months ago, according to Freddie Mac.

That’s the largest 12-week jump since 1994. It’s a dramatic shift from the average 3.22% rate at the beginning of this year, and the record low of 2.65% in January 2021.

And rates are likely only going up from here. They were already rising before the Federal Reserve increased its benchmark short-term rate last week for the first time since 2018 to try to slow down inflation. The Fed has signaled there are likely a few more increases in store this year, making affordability concerns even worse.

The dramatic rise in rates comes as buyers face soaring home prices and scarce inventory around the country. All of those factors could keep many buyers on the sidelines in the coming months, cooling the red hot housing market of the past few years.

Increases have already been pushing up the median monthly mortgage payment, according to the Mortgage Bankers Association. Median payments in February increased 8.3% compared to January, from $1,526 per month to $1,653. More striking: payments jumped 25.6% compared to a year ago.

And in fact, demand is already starting to drop. Last week, mortgage applications fell 8.1%, according to the Mortgage Bankers Association. It could keep falling if rates keep rising.

Warning sign for red-hot housing market

The past two years have been “transformative” in the housing market, according to Zillow: record low interest rates combined with many people’s desire for more space and millennials aging into their prime home-buying years created a buying frenzy across the country.

That led to intense bidding wars, countless concessions from buyers like waived inspections, and many homes going for well over asking. Few markets were safe, with all 50 of the U.S.’s largest metros recording double-digit year-over-year growth from February 2021 to February 2022, Zillow found.

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Now, the typical U.S. home is worth $331,533, an eye-popping 32.4% increase from February 2020. In the past year alone, the typical home value rose 20.3%.

Buyers who closed on homes throughout 2020 have benefited greatly from the astronomical price-appreciation. In fact, the growth in the typical home value in 2021 was higher than median wages in 25 of 38 major metropolitan areas, according to Zillow. In 11 metros, home price growth soared higher than $100,000, year-over-year.

Rising rates could stymie that appreciation, though Zillow anticipates home values will continue to climb for the next few months, through the traditionally busy spring buying season, with year-over-year home price growth rate hitting 22% in May.

Still, with interest rates rising, home prices remaining sky-high, and few homes for sale, buyers are starting to lose confidence. That transformative era just might be coming to a close.

This story was originally featured on Fortune.com