Mortgage rates are going up. Do not panic


As recently as last week, mortgage rates hit their highest level since August 2020. The average interest rate on a 30-year fixed-rate mortgage rose to 2.97%, according to Freddie Mac. The 15-year fixed rate mortgage rose to 2.34%. It was the biggest move in a week since last March, when the pandemic began to unfold.

While homebuyers and those looking to refinance may have missed out on the lowest rates on record, average rates are still historically low, said Danielle Hale, chief economist at Keep in mind that a year ago the rate on a 30-year fixed rate mortgage was 3.45%.

“It’s not a constant progression, but it looks like we’ve broken the trend of steadily hitting new lows,” she said.

Most experts agree that as the economy improves, rates will continue to rise. But how far will they go?

Why are the rates rising

The reason rates are rising is good news: the economy is improving.

“The poor economic outlook in 2020 has taken mortgage rates to record highs,” said Greg McBride, chief financial analyst at “Now that the economic sky is improving, mortgage rates are back to their decline from last year when they fell to levels never seen before.”

While unemployment still higher than it was before the pandemic, anticipation of a warming economy later this year has pushed up bond yields – seen as a benchmark for interest rate movements – . The 30-year fixed mortgage rate generally moves with the 10-year Treasury rate.

McBride believes inflation concerns will continue to drive up bond yields and mortgage rates. “We’ll have a break in March, but we’re in a bit more pain in the meantime.”

More people are expected to start spending more as marginal parts of the economy become available again, coronavirus cases decline and people get vaccinated, said Joel Kan, associate vice president. economic and industry forecasts for the Mortgage Bankers Association.

“The deployment of the vaccine appears to be accelerating,” he said. “If this continues at a reasonable pace and reaches a larger portion of the population by the middle of the year, it will improve the overall economic situation.”

Another potential contributor to the rate hike is the $ 1.9 billion stimulus package proposed by the Biden administration, which is currently making its way to Congress.

“We don’t know how much of this will happen, but there will likely be a boost for some households and it will improve the economic situation,” Kan said. “Again, this will put upward pressure on rates.”

But the rates should not go up. MBA forecast The 30-year fixed-rate mortgage rate will hit 3.4% by the end of this year, still lower than the 3.5% rate in the first quarter of 2020.

Have Homebuyers Missed Their Chance?

Even though rates tend to increase, most forecasts show that they are unlikely to increase much.

“It is inevitable that in the next few months mortgage rates will rise,” said Lawrence Yun, chief economist for the National Association of Realtors. “But nothing to worry about. Maybe we’ll hit 3% on average for the year and that will still be considered historically low.”

A bigger problem for buyers is the rapid rise in home prices.

The housing market was on fire, with record stocks pushing home values ​​up. In January, sales of existing homes were up 24% from a year ago and the median home price was up 14% from a year ago, according to the National Association of Realtors.

“Rising rates and rising home prices amid a housing shortage will undoubtedly challenge many buyers,” Hale said. “Still, historically low mortgage rates and rising rents in some of the more affordable homeownership markets will help those about to be reluctant to seriously consider buying instead of renting.”

Hale said buyers currently in the market should be prepared for certain week-to-week rate changes, she said. If you’re shopping right now, Hale said, take a look at your target home price and figure out what will happen to your budget if rates go up.

Yet for most homebuyers, rising interest rates won’t be as big a challenge as rising prices or finding a home over the next few months. Together, these factors are likely to temper the housing market.

“Higher mortgage rates mean the scorching housing market could downgrade at a mere sizzle,” McBride said. “The lack of homes available for sale is a much bigger barrier than a quarter of a percentage point increase from record lows in mortgage rates.”

The big problem is finding an affordable home, said Robert Frick, a business economist with the Navy Federal Credit Union.

For example, he said, the difference between a $ 300,000 mortgage at 2.75% and 3.5% is about $ 125 per month.

“But if home prices continue to rise at 15% per year, that will increase the monthly payment by a lot more than $ 125,” he said.

Recent increases in mortgage rates may slow the interest of homebuyers, but they set a deadline for those considering refinancing. Due to the rate hike, refinancing activity fell 11% last week to its lowest level since December 2020, but still remained 50% higher than a year ago, according to MBA.

For people considering refinancing, the party is not over, McBride said, but it is getting closer to the final call.


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