Mortgage interest rates went up again over the last week leaving many to ask the question, “How high will they go?” Another way you could think of it is “How long will they stay this low?”

The latest 30-year fixed-rate mortgage average from Freddie Mac showed rates rising to 3.56%. As always, keep in mind that this average does not include survey responses from all originators and is an average. That means your rate could be very different based on your credit score, down payment, type of loan and other factors. That’s why it is extremely important for each borrower to talk to a Movement Mortgage loan officer to get details on their individual situation instead of looking at headlines. 

Furthermore, historically speaking, we’re in a really good place. It just seems like an extreme rise because for the last two years mortgage interest rates hit lows that had never been seen before. The last time we saw a 4% or higher average was May 2019. To find interest rates that hit 5% or higher, you’d have to go back to February 2011, according to Freddie Mac’s averages. Most first-time homebuyers were probably in high school the last time we hit 6% or higher on average, which was in 2008. 

So what should you expect in 2022? The Mortgage Bankers Association’s forecast predicts that 30-year rates are going to be at 4% by the end of this year. Fannie Mae’s forecast points to a slower year of sales but not by much. The main issues Fannie Mae’s economists point to as headwinds continue to be lack of inventory leading to hyper competitive bidding wars and a supply chain that’s slowly clawing its way back to normal.

Due to those factors, home sales in December dropped by 4.6% according to the National Association of Realtors (NAR). Year-over-year that was a drop of 7.1% for December. Conversely, 2021 turned out to be an extremely strong year for home sales. The NAR reports sales were up 8.5% for the year and 2021 was the strongest year for sales since 2006. 

However, rising interest rates in 2022 will likely slow that pace down considering home prices are still red hot. The NAR data shows the median home price in December 2021 was $358,000—a whopping 15.8% increase year-over-year. This makes it even more imperative for borrowers to make sure they’re speaking with a loan officer so they can know all of the options available to them. In previous Market Updates we’ve discussed adjustable-rate mortgages as being a potential option for borrowers who want a lower interest rate. Your situation will vary based on what’s best for you, so if you’re seriously considering buying a home make sure you get all the facts from a Movement Mortgage loan officer first. 

 

THE WHY BEHIND THE RISE

The main driver behind the rise in rates is the changing monetary policy by the Federal Reserve. The reduction in mortgage-backed securities (MBS) and bond purchases, coupled with the projected interest rate hikes, have changed the way investors look at where they’re putting their money. 

You’ve probably heard a lot about the 10-year Treasury note yield if you’ve been keeping up with financial news. That is typically a good benchmark to follow if you’re curious where interest rates are moving. Mortgage interest rates are usually 1-2 points higher than the 10-year yield. That note has been especially volatile over the last few weeks, hitting nearly 1.9% January 19. To put this into perspective, the 10-year yield went below 1% in March 2020 at the onset of the pandemic and stayed below 1% through January 2021.



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