Pandemic-era mortgage deals are over

• The average U.S. fixed rate for a 30-year mortgage rose to 3.69% — close to pre-pandemic rates.
• That means housing affordability will fall even further.

Mortgage rates just hit their highest mark since the start of the pandemic — and more hikes are imminent throughout 2022.

According to Freddie Mac, the average U.S. fixed rate for a 30-year mortgage rose to 3.69% this week. That's significantly up from a pandemic low of 2.68% in December 2020, and means a lot of people will have even more trouble affording a new home.

"The normalization of the economy continues as mortgage rates jumped to the highest level since the emergence of the pandemic," said Sam Khater, Freddie Mac's Chief Economist.

Inflation reached a 40-year high in January and put pressure on mortgage rates, driving them to a three-year high this week. As rates are likely to continue rising, additional costs will burden potential borrowers. In a housing market that is facing an affordability crisis, this could significantly quell demand.

"Rate increases are expected to continue due to a strong labor market and high inflation, which likely will have an adverse impact on homebuyer demand," Khater said.

Housing affordability will plummet in 2022

Homebuyer demand skyrocketed during the pandemic, but a lack of available homes has pushed affordability to new lows.

Between October and December, a little more than 54% of new and existing homes were affordable for families earning the US median income of $79,000, according to the National Association of Homebuilders and Wells Housing Opportunity Index (HOI.) The rate represents the lowest affordability level recorded since the beginning of the revised series in the first quarter of 2012.

"Given that interest rates are expected to increase, housing affordability will be under additional pressure in 2022," Robert Dietz, National Association of Homebuilders chief economist, previously told Insider.

In January, the median home-sale price spiked 16% year over year to an all-time high of $365,000, according to Redfin's calculations. During the month, which was the most competitive in housing history, newly listed homes decreased by 9.1%. A new study by Realtor.com claims the gap between single-family home construction and household formations grew from 3.84 million homes at the beginning of 2019 to 5.8 million homes by the end of 2021, meaning homebuyers began the year with a tremendous lack of inventory.

"Fewer affordable homes were built and sold in 2021 compared to 2018 though 2020, creating a challenging environment, especially for first-time buyers," NAR researchers wrote. "Only 25% of new homes were sold for less than $300,000 in 2021, down from 42% in 2018."

Not enough homes are being built to meet demand, and the homes that are being built are much too expensive for the average buyer. As pressure mounts from inflation and rising mortgage rates, home buying will become more expensive in 2022 – likely squashing the homebuying dreams of many potential buyers.

"To help ease growing affordability problems, policymakers must take steps to help builders to increase production to meet strong demand and stem the rapid climb in home prices that has taken place over the past year," Dietz said.

Are you a potential buyer who is having a hard time finding an affordable home? Reach out to this reporter at alloyd@insider.com to share your story.