Mortgage Rates Rise Amid Growing Concerns About Inflation
Mortgage rates are continuing to climb, according to data by Freddie Mac released Thursday, driven largely by rising inflation resulting from high demand and shortages of goods across the economy.
The 30-year fixed-rate average rose to 3.09 percent with an average 0.7 point, up from 3.05 percent last week and 2.80 percent a year ago.
The 15-year fixed-rate average increased to 2.33 percent with an average 0.7 point, up from 2.30 percent a week ago. It was 2.33 percent a year ago. The five-year adjustable rate average nudged down to 2.54 percent, with an average 0.3 point, from 2.55 percent a week ago. It was 2.87 percent a year ago.
Mortgage rates have been at historic lows dipping periodically to below 3 percent since the Federal Reserve last year began purchasing $120 billion a month in Treasurys and mortgage-backed securities to keep the economy strong during the pandemic. But those days could be numbered with the Fed announcing that it will taper those purchases and raise interest rates soon to curb inflation.
Inflation in the United States has reached a 13-year high of 5.4 percent annually, according to the government, evidenced by higher prices for homes, cars, energy, food and other goods.
The economy continues to grow, inflation is running hot, and the Federal Reserve is about to begin paring their bond purchases that have helped keep mortgage rates low, said Greg McBride, senior vice president and chief financial analyst at Bankrate.com.
Housing Sales Trends 2021
Homes for sale in November continued to sell more quickly than last year, as buyer demand remained on a strong footing. The average home stayed on the market for 47 days, down 10 days from last year. Despite the typical seasonal slowdown, homes sold faster than in any other November in recent history, and even faster than during previous summer seasonal peaks.
In the 50 largest U.S. metros, the typical home spent 41 days on the market, and homes spent 6 days less on the market, on average, compared to last November. Among these 50 largest metros, the time a typical property spends on the market has decreased most in large metros in the South , followed by the Northeast , West , and Midwest .
Homes saw the greatest decline in time spent on the market compared to last year in:
- Miami
- Raleigh
- Orlando
Five metros saw time on the market increase: New Orleans , San Jose , Hartford , Cincinnati , and Kansas City .
Total existing-home sales that include single-family homes, townhomes, condominiums, and co-ops, grew 1.9% from October to a seasonally adjusted annual rate of 6.46 million in November, according to the National Association of Realtors®. However, sales fell 2.0% from a year ago .
What That Forecast Got Correct
I look at that year-ago prediction in two ways. The forecasters were wrong in their aggregated prediction that mortgage rates would stay about the same. But they were right about something more important: that rates, when averaged for the year, wouldn’t be higher in 2021 than in 2020.
That prediction wasn’t exactly bold, but it wasn’t intuitive, either. Mortgage rates were low in 2020, with little room to go down and a lot of room to go up. The COVID-19 recession looked like it was ending, and vaccines were on the way. An economic recovery would tend to push mortgage rates higher.
But mortgage rates didn’t move much in 2021 until they turned upward in late September. The forecast is for them to assume an upward trend throughout 2022.
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% Say Rates Will Go Up
Ken H. Johnson
Real estate economist,Florida Atlantic University
After a confusing week in the bond markets caused by uncertainty brought on by the omicron variant, the 10-year Treasury note market is beginning to react rationally to tightening Fed policies. The yield on the 10-year Treasury notes is rising and long-term mortgage rates will soon follow. Mortgage rates will rise in the coming week.
Greg McBride
Vote: Up. Inflation and omicron will keep mortgage rates yo-yoing up and down within a range.
Robert Brusca
Chief economist,Facts and Opinions Economics,New York
Higher.
Is It A Better Time To Buy Or Sell A Home
There are more economic factors on balance, putting downward pressure on home prices than upward pressure. However, that was also the case in the first three months of 2021 when Canadians desperate for more living space pushed home values higher.
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If you believe that the rise in buying activity is explained by Canadians seeking more living space, then the end of pandemic restrictions coming this summer might trigger an end to this economic real estate cycle.
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If you believe that interest rates are the primary driver of home prices, then the forecasted rise in rates would indicate prices will moderate in the second half of 2021.
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Population growth is also expected to remain below average in 2021, so population growth shoudnt come into play until 2022.
Homebuyer Advice
If you plan to buy in the next three years, be mindful that there is a risk that prices will fall in the short run, so that a wait-and-see approach may be appropriate.
The low mortgage rates provide more purchasing power for buyers who are still employed than in 2019, but less than six months ago. In a weakened market, low rates are a gift to homebuyers however, it inflates the value of a standard home in markets with low supply.
Home Seller Advice
Unemployment is still high, and if we use past recessions as a guide, there will likely be a weakening in home valuations.
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Housing Market Monthly Trends: Price Growth Remains Steady In November 2021
Before the pandemic, the housing market was remarkably strong. The coronavirus crisis response was unprecedented. The federal government ordered a de facto shutdown of the entire private economy, closing an estimated eighty percent of businesses. It has caused unemployment to soar to at least ten percent, while tens of millions are idled. We are now in a period where we can compare housing trends against the early days of the pandemic when the real estate market was largely halted.
Back in March of last year, the real estate market looked to be headed into a steep decline due to widespread stay-home orders. Since then, homebuyers, supported by low-interest rates, have kept the US housing market afloat. The pandemic has certainly affected every sector but the residential real estate market has been very resilient and it continues to be a pillar of support for the economy. The housing market bounced back in 2020 much faster than other sectors of the economy and has sustained that growth and pace into 2021.
2020 was a record-breaking year for the US housing market. The typical U.S. home was worth $266,104 in December, up 8.4% from a year ago. A total of 5.64 million homes were sold in 2020, up 5.6% from 2019 and the most since before the Great Recession, according to Lawrence Yun, NARs chief economist. Sales also rose 0.7% from November and 22.2% year over year. Existing home sales reached the highest level in 13 years.
How Does The Federal Reserve Affect Mortgage Interest Rates
The Federal Reserve does influence mortgage rates, but the two arent directly linked. The Fed sets the federal funds rate, which is the rate at which banks borrow and lend money to each other, usually on an overnight basis. Each time the Fed meets, it issues a press release highlighting committee members views on the economy. If their position is generally positive, mortgage rates tend to rise. When their outlook is negative, mortgage rates tend to fall.
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Housing Market Trends For Supply
Nationally, the inventory of homes for sale in October , a larger rate of decline compared to the 22.5% drop in October. This decline amounted to 194,000 fewer homes actively for sale on a typical day in November compared to the previous year. Active inventory remains historically low. The total number of unsold homes nationwidea metric that includes active listings and listings in various stages of the selling process that are not yet sold is down 16.2% percent from November 2020.
In November, newly listed homes declined by 0.7% on a year-over-year basis following typical seasonal patterns. However, sellers are still listing at rates 13.3% lower than typical of 2017 to 2019 levels. This is the third consecutive month in which new seller activity has been lower than last year, contributing to lower inventory.
However, the annual decline in new listings has improved from -3.9 percent in September and -2.4 percent in October. New properties are coming on the market every week but are also being sold quickly. The total housing supply is not enough to mark it as a buyers real estate market and it is not equal to what is needed to relieve the historically tight home supply.
Housing Markets that saw the largest year-over-year increase in newly listed homes in November:
- Milwaukee, where newly listed homes grew by +17.4%
- Charlotte, where newly listed homes grew by +16.1%
- Buffalo, where newly listed home grew by +13.5%
Fort Lauderdale Poised For Unprecedented Growth This Decade
Total housing inventory at the end of November amounted to 1.11 million units, down 9.8% from October and down 13.3% from one year ago . Unsold inventory sits at a 2.1-month supply at the current sales pace, a decline from both the prior month and from one year ago.
The median existing-home price for all housing types in November was $353,900, up 13.9% from November 2020 , as prices increased in each region, with the highest pace of appreciation in the South region. This marks 117 straight months of year-over-year increases, the longest-running streak on record.
Supply-chain disruptions for building new homes and labor shortages have hindered bringing more inventory to the market, said Yun. Therefore, housing prices continue to march higher due to the near record-low supply levels.
Yun noted that inflation and the pace of price appreciation are expected to subside next year. Last week, NAR held its third annual Real Estate Forecast Summit, featuring economists and housing experts whose consensus found inflation would likely ease in 2022 at a 4% rate, while home prices are expected to rise at a moderate pace of 5.7%.
Properties typically remained on the market for 18 days in November, equal to October and down from 21 days in November 2020. Eighty-three percent of homes sold in November were on the market for less than a month.
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Latest Housing Market Trends: Prices Sales Inventory 2021
According to N.A.R, an increasing gap between supply and demand will cause home prices to increase and we can expect further upward pressure on prices for the foreseeable future. According to Yun, with mortgage rates to remain low, existing-homes sales are projected to rise by 10% in 2021 to reach 6.2 million in 2021, while the median home price is anticipated to increase by 9% in 2021 to $323,900. Housing starts are forecasted to reach 1.6 million in 2021 and 1.7 million in 2022, providing much-needed relief to the housing inventory deficit.
According to Bankrates latest survey of the nations largest mortgage lenders, as of December 17th, 2021, the average rate for a 30-year fixed mortgage is 3.24 percent, a decrease of 1 basis point since the same time last week. A month ago, the average rate on a 30-year fixed mortgage was higher, at 3.20 percent. The average rate for the benchmark 15-year fixed mortgage is 2.52 percent, down 1 basis point from a week ago.
- At the current average rate, youll pay $434.66 per month in principal and interest for every $100,000 you borrow.
- Monthly payments on a 15-year fixed mortgage at that rate will cost roughly $390 per $100k borrowed.
Note: The larger payment may be more difficult to fit into your monthly budget than a 30-year mortgage payment, but it comes with some significant benefits: you’ll save thousands of dollars in total interest paid over the life of the loan and build equity much faster.
Len Kiefer Deputy Chief Economist With Freddie Mac
Kiefer anticipates the currently low mortgage rates to continue throughout next year. Our forecast is that rates will be relatively flat next year, he says. But Kiefer says rates may not necessarily stay that way. They might bounce around a little bit, he says. And he believes rates may be modestly higher at the end of next year, but pretty flat over the next 12 months.
Kiefer believes any change we see in mortgage rates will be tied to the broader economy. The key thing for the early part of 2021 is going to be what happens with the pandemic, Kiefer says. If the economy opens up, we may see interest rates start to rise a little bit. However, if theres increased economic uncertainty, that would put downward pressure on rates. One thing to keep an eye on is inflation. If inflation increases, he expects rates to rise in that scenario.
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Will Mortgage Rates Go Up In 2022
As the U.S. economy continues to climb out of its Covid slump, and as inflation puts upward pressure on interest rates, most experts agree mortgage rates will climb higher in 2022.
Just how high will they go? Industry sources are split on that. But they mostly agree on 30year rates in the high3% to low4% range by the end of next year.
That means its in your best interest to buy or refinance early in 2022 if youre banking on todays low rates to help you save.
Bruce Ailion Real Estate Attorney And Realtor
30year mortgage rates forecast: 4%
15year mortgage rates forecast: 3.5%
Bruce Ailion, a Realtor and real estate attorney, isnt very optimistic that 2022 rates will remain as enticingly low as they have been this year.
When inflation first appeared, it was hoped that it would be transitory. Today, it is considered baked into the future, he cautions. The 2022 inflation rate is expected to settle at 4.5%, hopefully receding to 3.5% in 2023. Expected higher interest rates will place pressure on the Fed to slow the economy through interest rate increases.
He reminds readers that the Fed has signaled the intent to increase rates by slowing their purchase of government bonds, which will cause rates overall to increase next year.
But rates could go lowerthanexpected next year if we see a consumer backlash and unwillingness to pay higher prices. The labor pool that has been sitting on the sidelines of this recovery may reenter the workforce, as well, slowing down wage inflation. These and other actions are unlikely to occur, however, he explains.
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Shop Around And Negotiate
When youre shopping for a mortgage, its important to get quotes from multiple lenders. Rates vary widely, and the difference between the most expensive and least expensive lenders can be as high as 0.75%, according to a recent study by the fintech startup Haus. But you cant just focus on the rate, the closing costs are also important.
Two loans may have the exact same interest rate, but one could have thousands of dollars in extra fees. So its important to read each lenders Loan Estimate carefully, and to pay attention to both the mortgage interest rate and annual percentage rate .
If you have multiple offers to compare, it may be easier to talk to a lender and negotiate the rate or fees.
What Are Current Mortgage Rates Today
For today, Wednesday, December 22, 2021, the average 30-year fixed mortgage rate is 3.190% with an APR of 3.350%. The average 30-year fixed mortgage refinance rate currently is 3.160% with an APR of 3.260%.
Looking at mortgages with shorter loan terms, currently, the average 15-year fixed mortgage rate is 2.500%, with an APR of 2.710%. And the average 15-year fixed refinance rate is 2.450%, with an APR of 2.600%. The average 20-year fixed mortgage rate is 3.070%, with an APR of 3.200%. And the average 20-year fixed refinance rate is 3.050%, with an APR of 3.150%.
For adjustable-rate loans, we are seeing the average 5/1 ARM loan rate of 2.740% with an APR of 4.070%.
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Housing Construction Trends & Homebuilder Confidence
The NAHB also gets input from builders on how confident they are in the housing market based on buyer behavior, sales, and incorporates any forecasts as well. Building permits have recovered from epidemic lows, and builders are scrambling to close the supply-demand imbalance. They are still optimistic a year after the Covid epidemic brought home development to a halt. Because the current house market continues to suffer from a record low number of listings, they are seeing high demand from potential purchasers.
It is becoming increasingly difficult for them to meet this housing demand due to supply delivery issues and rising material costs. NAHB Housing Market Index is a gauge of builder opinion on the relative level of current and future single-family home sales. It is a diffusion index, which means that a reading above 50 indicates a favorable outlook on home sales below 50 indicates a negative outlook.
Builder sentiment in the market for newly-built single-family homes moved three points higher to 83 in November. Low existing inventories and strong buyer demand boosted builder confidence for the third month in a row, even as supply-side challenges such as building material bottlenecks and lot and labor shortages persisted.
The solid market for home building continued in November despite ongoing supply-side challenges, said NAHB Chairman Chuck Fowke. Lack of resale inventory combined with strong consumer demand continues to boost single-family home building.
