Mortgage rates are on the way higher

The 30-year fixed-rate loan was on average 3.22% in the week ending January 6, up from an average of 3.11% last week. A year ago, the 30-year rate was 2.65%, the lowest ever.

“Mortgage rates rose during the first week of 2022 to the highest level since May 2020 and are more than half a percent higher than January 2021,” said Sam Khater, Freddie Mac’s chief economist.

Interest rates have been expected to rise as the economy improves and inflation threatens.

“With higher inflation, promising economic growth and a tight labor market, we expect rates to continue to rise,” Khater said.

Forecasts show that rates will rise during this year. Lawrence Yun, chief economist at the National Association of Realtors, expects the 30-year fixed mortgage rate to average 3.7% by the end of 2022, while Jacob Channel, LendingTrees senior economic analyst, predicts an interest rate of almost 4%.

“This can make affordable housing an even bigger challenge ̵[ads1]1; especially for buyers with lower incomes,” said Channel. “Fortunately, rising prices are not just bad news, as higher prices are likely to mean fewer new home buyers and a generally less hypercompetitive housing market.”

Applications for mortgage purchase and refinancing were down at the end of December, even after taking into account the typical decline around the holidays, according to the Mortgage Bankers Association.

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“Refinancing demand continues to decline, as many borrowers refinanced in 2020, and early 2021, when mortgage rates were around 40 basis points lower,” said Joel Kan, MBA’s assistant vice president of economic and industrial forecasting.

The number of mortgage applications to buy a home also ended the year on a slower note, with the last week of the year as the weakest since October, Kan said. “Although the average loan size was lower, the rise in house prices remains at very high levels.”

The housing stock is still close to record lows at the beginning of 2022, which keeps prices high.

“For buyers who are still struggling with last year’s overheated market and soaring prices, rapid inflation is pushing their budgets and offsetting low mortgage rates,” said George Ratiu,’s head of economic research.

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A driving force behind higher interest rates is the recovering economy.

The strong rise in mortgage rates followed a jump in the 10-year treasury to the highest level since March 2021, Ratiu said. The move came after the Federal Reserve issued its minutes of meetings on December Wednesday, which indicated that it plans to end its stimulus program sooner than originally announced, and raise interest rates throughout the year.

Until now, mortgage investors, whose movements are affecting interest rates, have taken a “wait-and-see” approach to the impact of the Omicron variant on the economy, Ratiu said.

“The variant appears to be milder, and economic data show strong resilience,” Ratiu said. “I expect that the upward momentum in government interest rates will continue to increase mortgage rates.”

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