Mortgage rates hit their highest levels in nearly two years
The average 30-year fixed mortgage rate jumped again last week, to 3.75%, the highest since March 2020.
Last week’s 12 basis point increase is the fourth consecutive week of rate increases, and now by 48 basis points – 3.27% to 3.75% – over a four-week period.
Rising inflation has been cited by pundits and the Fed as a major factor in the rate hike. the December 2021 Consumer Price Index released last week by Bureau of Labor and Statistics (BLS) shows inflation of 7% over the past 12 months, the biggest inflation spurt in 40 years. Higher-than-expected inflation could cause the Fed to raise rates faster than expected, pushing rates higher, Redfin chief economist Daryl Fairweather told us recently.
While some experts have said further outbreaks of COVID-19 could stall rising rates, that has not been the case so far this year. New variants and the potential surges they could cause could still pose new threats to economic progress, putting downward pressure on mortgage interest rates, according to the Zillow economist Nicole Bachaud told us recently.
However, there are reasons to believe that rates could continue to rise as they have lately, even with new variants and pushes. Since COVID-19 first hit the US, subsequent increases in cases haven’t had as much of a negative impact on the economy as the initial surge, HousingWire senior analysts say Logan Mohtashami, we recently told.
Mortgage rates may have reached levels not seen in nearly two years, but they are still historically low and lower than they were before the pandemic began. For buyers and homeowners, making a good decision to buy or refinance depends much more on their personal circumstances than on current mortgage rates.
Here’s what that means for borrowers.
ABOUT THE LATEST MORTGAGE RATES
Last week’s average mortgage rate is based on mortgage rate information provided by national lenders to Bankrate.com, which, like NextAdvisor, is owned by Red Ventures.
Here’s what to expect with mortgage rates and the housing market in January 2022
Many experts predicted that mortgage rates would reach this level in 2022. However, most experts did not predict that it would happen that quickly.
Chief Economist of Realtor.com Danielle Hale and Fairweather recently told us that they expect mortgage rates to hit 3.6% by the end of 2022, not in the first month of the year.
Mortgage Bankers Association Economist Joel Can predicted that the average 30-year fixed mortgage rate would hit 4% by the end of 2022, citing economic growth as one of the main reasons for its prediction. If rates continue to rise as they have lately, his prediction will also come true much sooner than expected.
New COVID variants and surges in cases haven’t had as much of a negative impact on the economy as the initial surge, so even if the pandemic continues, rates will likely continue to rise, Mohtashami said.
On the possible positive side for home buyers, rising rates could cool the housing market somewhat. “If you have to wait until later in the year when mortgage rates are higher, I think you’ll have the advantage of having a lot more choice,” Fairweather says. Ultimately, buying a home should be a long-term decision. You can’t really lose as long as you stay in the house for a long time, she says: “In the long run, the value of houses will increase.
The highs and lows of the average 30-year fixed mortgage rate
Here’s a look at how current mortgage rates compare to past years, as well as the rate of inflation and national house prices for each year.
|2019||2020||2021||2022 (until January 20)|
|Highest 30-year fixed mortgage rate||4.05%||3.88%||3.34%||3.75%|
|Lowest 30-year fixed mortgage rate||3.74%||2.95%||2.93%||3.4%|
|Inflation rate||2.3%||1.4%||seven%||N / A|
|Average National House Price||$271,900||$296,700||$353,900*||N / A|
When looking at the average 30-year fixed mortgage rate over a longer period, there is a more important trend to highlight: today’s rates are not as high as they might seem in the context of the last two years. Last week’s new average rate of 3.75% looks high compared to the 2.93% seen in early January 2021. But 3.75% is still just a hair above the lowest average rate on record in 2019.
What Other Mortgage Industry Data Says
Last week’s rate increase was also reflected in the latest Freddie Mac investigation, a long-term average of mortgage rates monitored by industry experts. The Freddie Mac survey had the average 30-year mortgage rate at 3.56% last week, an increase of 11 basis points from its average the previous week. This is Freddie Mac’s biggest weekly increase since March 2020.
Freddie Mac is a government-sponsored organization that purchases home loans on the secondary market. Its survey methodology and the period in which it collects data each week differs from other surveys, such as the Bankrate survey referenced throughout this article. Although different mortgage rate averages show slight variations, they show similar overall trends in mortgage rates over time.
Here’s what that means for existing owners:
Rising mortgage rates might give the impression that refinancing is no longer a good option, but that’s not necessarily true. Mortgage rates at current levels are still considered favorable compared to the rage of 4% and more that they were before the pandemic. As a rule of thumb, if you can get a new mortgage rate almost 0.75% lower than your current rate, it might be a good decision to refinance.
Homeowners who are on the fence about refinancing may want to consider it. Mortgage rates are expected to continue their long-term upward trajectory, so it may be worth comparing numbers with a few lenders to see if you can benefit.
A rate and term refinance could go a long way in reducing not only your monthly payments, but also the amount of interest paid over the life of the loan. As home values across the country have increased over the past year, you can also take advantage of your home’s increased equity by doing a cash refinance, home equity loan, or HELOC. These can be a useful tool to help pay off high interest debt, pay for college expenses, or fund a home improvement project.
Here’s what it means for new homebuyers
Experts believe that the housing market is starting to cool. But buyer demand is expected to remain high, Kan told us recently. “We have a lot of young people in the population who are entering homeownership age or are already there,” Kan says. But as housing prices have risen over the past year, you might need a larger down payment of at least 10%, but ideally 20%, to stay within the affordable range.
Higher mortgage interest rates will impact your purchasing power, Kerry Melcher, head of real estate at Opendoor, told us recently. “Understanding your financing is really important,” she says, which means understanding the upper limits of your home buying budget is key. You might qualify for a loan amount that’s larger than you’re comfortable with, and you don’t want to get caught up in a bidding war and end up with a higher-than-expected monthly payment.
That’s why housing experts recommend planning ahead by:
- Know how much house you can afford
- Don’t rush into buying a house
- Stick to a home buying budget
- Find an experienced real estate agent you are comfortable with
- Plug and play your estimated numbers in NextAdvisor’s mortgage calculator to see what a comfortable monthly mortgage payment will look like.