Mortgage rates just jumped again. What that means for homebuyers

Mortgage rates just jumped again. What that means for homebuyers
Written by Publishing Team

A pedestrian walks past a Wells Fargo mortgage office in San Francisco.

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If you’re looking for a home and you haven’t checked your mortgage rate yet, that home is getting more expensive.

The popular 30-year mortgage rate averaged 3.64% Monday morning, after rising sharply last week, according to daily mortgage news. On Friday the rate was 3.5% and last Monday it was 3.29%.

The real jump occurred in the middle of the week, when the Federal Reserve announced that it would empty mortgage-backed securities from its balance sheet sooner than expected. Bond yields also rose on news that the coronavirus omicron variant could rise and then moderate quickly, and with symptoms much weaker than previous strains, economic activity could quickly rebound. Mortgage rates loosely track the 10-year Treasury yield.

“Last week saw bond selling at their fastest pace in at least nine months on a combination of hawkish pivots from the Federal Reserve and contradictory optimism,” wrote Matthew Graham, chief operating officer at the Department of Social Development. “The issuance of corporate bonds and the looming treasury issuance added to the selling sentiment,” he added.

The current jump in prices will cost potential homebuyers dearly. For a mid-priced home, which is currently around $350,000, buyers who make a 20% monthly payment will see $125 higher than they would have received just three weeks ago. For those using low-interest loans, the monthly increase will be greater.

Mortgage rates haven’t been that high since the pandemic began in early 2020. Prices then rose briefly for about three weeks, and then continued to fall before the pandemic hit, hitting more than a dozen record lows by the onset of winter. This coincided with a huge jump in housing demand due to the pandemic, causing a sharp rise in home purchases.

In 2021, prices moved within a narrow margin, but remained relatively low, resulting in increased demand and higher housing prices. The only thing holding buyers back is the chronic decline in supply.

Higher interest rates can throw some cold water on rising home prices, as buyers run into the affordability wall. However, much of what is supporting prices at the moment is strong investor demand for housing. Investors are less likely to use mortgages.

While demand for newly built homes is increasing, stocks of major builders, including DR Horton, Lennar and Toll Brothers, are all declining in 2022. They tend to respond quickly to sharp price moves in either direction. Construction analysts were very bullish on the sector, citing strong fundamentals. However, it now appears that they are reconsidering.

“Overall, we expect the group (particularly builders) to be hostage to rates and the looming Fed cycle, and we are more cautious as the year progresses as we expect housing fundamentals to moderate,” RBC analysts wrote in a note to investors Monday. .


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