The average 30-year fixed-rate mortgage jumped again last week, to 3.63% – the highest level since April 2020.
Last week’s jump – up 23 basis points – is the biggest weekly increase in nearly two years. It’s also the third week in a row that rates have risen. The rate hike can be attributed in part to the recent spike in inflation, experts say, which new data showed reached a 40-year high in December.
Although COVID cases may rise amid the current Omicron wave to hamper economic growth, the increase in the past week is in line with recent statements by Federal Reserve Chairman Jerome Powell that the Fed expects to raise interest rates three times in 2022. With the Fed increasing, experts say As the economy improves, rates are sure to follow, and mortgage and refinancing rates will follow.
The Consumer Price Index for December 2021 released by the Bureau of Labor and Statistics (BLS) indicates that further price increases should be expected as long as inflation persists. The 7% inflation in the past 12 months is the biggest rise in inflation in 40 years, and has been cited by experts and the Federal Reserve as a major factor behind the price hike.
Many experts expected mortgage rates to reach that level in 2022, but they didn’t expect it to happen so quickly. Redfin chief economist Daryl Fairweather recently told us she thinks rates will reach 3.6% by the end of 2022. “My forecast for when mortgage rates will increase is evenly spread over the year,” Fairweather said.
Even if prices continue to rise, stay the same, or decline, what matters for homebuyers and homeowners is not which direction prices are headed, but making sure refinancing or buying a home is the right financial move for their circumstances.
Here’s a look at what to expect and what this means for borrowers.
About the latest mortgage rates
The average mortgage rate last week is based on mortgage rate information provided by national lenders to Bankrate.com, which is owned by Red Ventures such as NextAdvisor.
2022 Mortgage Rates and the Housing Market: What to Expect
Experts say high rates like the ones we’ve seen in the past few weeks are likely to continue.
The average 30-year fixed rate mortgage will reach 4% by the end of 2022, says Joel Kahn, economist at the Real Estate Bankers Association (MBA). Kahn cites projected economic growth in 2022 as one of the biggest reasons behind his predictions.
While some experts have said that the new economic uncertainty brought about by the Omicron wave has stalled interest rate hikes, so far this has not been the case. Zillow economist Nicole Baswood recently told us that a new wave of COVID variables is threatening economic progress, putting downward pressure on mortgage interest rates.
Logan Mohtasami, HousingWire data analyst, says the economy is better prepared to handle new waves of novel coronavirus cases than it was during the early days of the pandemic. New COVID variants and sudden increases in cases have not had such a negative impact on the economy as the initial wave, so even as the pandemic continues, rates are likely to continue to increase, he says.
If you look at the delta variable, “economic growth has continued relatively smoothly,” Realtor.com chief economist Daniel Hale told us recently. She said the new variables would have less impact on actual economic activity.
The majority of consumers share expert opinion. According to a recent study by Fannie Mae Housing, 56% of Americans believe that mortgage rates will rise within the next 12 months.
While 3.63% may not sound as attractive as the lower-3% rates we saw in early 2021, rates are still very low from a historical perspective – and still at attractive refinancing levels. It remains well below pre-pandemic 4% levels. What matters most is how much your current price cut is. If you can lower your current rate by approximately 75 basis points, you can take advantage of refinancing – which results in significant savings in interest paid over the life of the loan.
For potential homebuyers, we believe the housing market is starting to cool off. Kahn recently told us that demand is expected to remain high. “We have a lot of young people among the population entering, or are already at, the prime age for home ownership,” Kahn says.
Compare mortgage rates last week with previous years
|the past three years||Average Fixed Rate Mortgage for 30 Years|
Mortgage rates bottomed out a year ago when they hit record lows below 3%. This is nearly half a percent lower than today’s mortgage rates. But two years ago, the average 30-year fixed-rate mortgage rate was 3.81% — well above today’s rates.
The significant drop in rates in 2021 was largely a result of the economic effects of the COVID-19 pandemic and the Federal Reserve’s reactive policies to support the economy. Nearly 9 million workers reported losing their jobs in 2020, according to the US Bureau of Labor Statistics (BLS). In an effort to avoid widespread foreclosures, the Federal Reserve has implemented policies aimed at lowering interest rates to make housing more affordable. Low interest rates can help keep home purchase prices affordable and encourage homeowners to refinance to lower their monthly mortgage payments.
What other mortgage industry data says
Last week’s surge in interest rates was also evident in Freddie Mac’s latest survey, the average long-term mortgage rate seen by industry experts. Freddie Mac’s survey put the 30-year average mortgage rate at 3.45% last week, up 23 basis points from the previous week’s average. This is the largest weekly increase for Freddie Mac since March 2020.
Freddie Mac is a government sponsored organization that buys home loans on the secondary market. The survey methodology and time period in which the data is collected each week is different from other surveys, such as the Bankrate survey referenced in this article. While the averages for different mortgage rates will show slight variation, they show similar general mortgage rate trends over time.
- Higher mortgage rates may make it seem like refinancing is no longer a good option, but that’s not necessarily true. Mortgage rates at current levels remain favorable compared to the 4%+ rage they were before the pandemic. A good rule of thumb is that if you can score a new mortgage rate close to 0.75% below the current rate, it may be a good move to refinance.
- Homeowners who are on the fence about refinancing may want to consider this. Mortgage rates are expected to continue on their upward trajectory over the long term, so it may be worth working with the numbers with a few lenders to see if you can take advantage.
- The rate and term refinancing can go a long way in reducing not only your monthly payments but also the amount of interest paid over the life of the loan. With home values rising across the country over the past year, you can also take advantage of raising your home’s equity by refinancing cash. Cashback can be a useful tool to help pay off high-interest debt, pay for college expenses, or fund a home improvement project.
New home buyers
- Save for a deposit of at least 10%, but ideally 20%. With home prices rising over the past year, you may need a larger down payment to stay within your affordable range. While a lower mortgage rate can help offset down payment expenses, a large home loan can overwhelm potential savings from a lower mortgage rate.
- Most experts say not to make time to market and buy when the time is right for your personal situation. Glenn Bronker, president of Ally Home, recently told us that if you’ve been sitting on the sidelines hoping for lower prices, you might be disappointed. He said that since home prices are expected to grow, timing the market is not a recommended strategy.
- Plan in advance:
- Plug and play your estimated numbers into NextAdvisor’s mortgage calculator to see what your monthly payments might look like.