Latest mortgage news: Rates jump to their highest since March 2020

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Mortgage rates surged this week, reaching their highest level since March 2020. The average rate on 30-year mortgages rose to 3.75 percent, according to Bankrate’s weekly survey of large lenders.

“Mortgage rates have bounded higher since the beginning of the year and are half a percentage point above where they were three months ago,” says Greg McBride, CFA, Bankrate’s chief financial analyst. “Inflation is a major economic issue and the Fed was late to get that memo, so recalibrating Fed expectations has been a catalyst for volatility.”

Mortgage experts expected rates to climb from the all-time bottom achieved in January 2021. A year ago, the benchmark 30-year fixed-rate mortgage was 3 percent. Four weeks ago, the rate was 3.27 percent. The 30-year fixed-rate average for this week is 0.84 percentage point higher than the 52-week low of 2.93 percent.

The 30-year fixed mortgages in this week’s survey had an average total of 0.34 discount and origination points.

Over the past 52 weeks, the 30-year fixed has averaged 3.18 percent.

Where mortgage rates are headed

Worries about a resurgence of coronavirus cases are weighing on stocks and on U.S. Treasury yields, which were in the range of 1.82 percent Wednesday. Last month, yields had hovered in the range of 1.5 percent. Meanwhile, the Federal Reserve has signaled that it will raise rates in a move to rein in inflation.

Last week, the official inflation figure came in at 7 percent, its highest level since 1982 and a harbinger of higher mortgage rates. Mike Fratantoni, chief economist at the Mortgage Bankers Association, had predicted the average rate on a 30-year mortgage will reach 3.5 percent by mid-2022 and 4 percent by late 2022.

“Inflation is running well above target, and the job market is booming,” Fratantoni says. “That is why it was no surprise that the Federal Reserve moved to accelerate their taper of Treasury and (mortgage-backed securities) purchases, and signaled that the first rate hike will be coming sooner rather than later. Moreover, the median (Federal Open Markets Committee) member now expects three rate hikes in 2022.”

The Mortgage Bankers Association expects refinancing activity to disappear as rates rise. But it also expects a strong home-sales market in 2022. Indeed, applications for purchase mortgages jumped this week, perhaps reflecting a new urgency to lock in a rate before rates rise further.

Mortgage experts offer mixed predictions about the direction of rates in the next week in Bankrate’s latest survey. McBride, Bankrate’s chief financial analyst, expects rates to pause after the recent rise.

“As the Fed starts to tighten, long-term rates will calm down,” he says.

But others say upward pressures remain. “Rates are shooting higher and are likely close to peaking as the market tries to guess how aggressive the Fed will be,” says Gordon Miller of Miller Lending Group in Cary, North Carolina.

Meanwhile, the Federal Reserve has begun its long-anticipated “taper” of asset purchases, and the Fed has since said it might accelerate the pace of the taper. While that move creates upward pressure, mortgage rates are unlikely to spike as a result of the taper. However, the Fed’s changing stance does set the stage for a gradual rise in rates.

Home purchases remain strong for now

Economists generally expect rates to rise by the end of 2022. As mortgage rates climb, decreased purchasing power might ease some of the pressure on home prices. “A slowdown in housing prices can soon be expected,” says Ken H. Johnson, a housing economist at Florida Atlantic University.

But competition will remain intense among those who can still afford to buy. Those looking to refinance should be able to find good deals, though at rates a bit higher than the current level.

The bottom line: If you see a rate that fits your needs and budget, the time to do that refinance could be now. In fact, many homeowners with a mortgage haven’t taken advantage of the low rate environment. Among homeowners with a mortgage they’ve had since before the pandemic, 74 percent have not refinanced, according to a recent Bankrate survey.

“The overwhelming majority of mortgage borrowers have not yet refinanced, despite record-low rates over the past year,” says Greg McBride, Bankrate’s chief financial analyst. “Cutting the monthly mortgage payment by $150 or $250, possibly more, can create valuable breathing room in the household budget at a time when so many other costs are on the rise.”

Methodology

The Bankrate.com national survey of large lenders is conducted weekly. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison. Our rates differ from other national surveys, in particular Freddie Mac’s weekly published rates. Each week Freddie Mac surveys lenders on the rates and points based on first-lien prime conventional conforming home purchase mortgages with a loan-to-value of 80 percent. “Lenders surveyed each week are a mix of lender types – thrifts, credit unions, commercial banks and mortgage lending companies – is roughly proportional to the level of mortgage business that each type commands nationwide,” according to Freddie Mac.

Written by
Jeff Ostrowski
Senior mortgage reporter
Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal.
Edited by
Senior mortgage editor
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