US Mortgage rates reaching highest levels since 2019

Mortgage rates kept surging this week, reaching their highest levels since before the pandemic. The average rate on 30-year mortgages climbed to 4.03 percent from 3.85 percent last week, according to Bankrate’s weekly survey of large lenders.

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The Federal Reserve has signaled that a hike in interest rates is imminent, perhaps as early as next month’s meeting.

The rapid rise has outpaced most forecasts. While mortgage experts expected rates to continue to climb from the all-time bottom of 2.93 percent achieved in January 2021, this jump has been steep. A year ago, the benchmark 30-year fixed-rate mortgage was at 3.05 percent. Four weeks ago, the rate was 3.75 percent. The 30-year fixed-rate average for this week is 1.03 percentage point higher than the 52-week low of 3 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 3.25 percent.

  • The 15-year fixed-rate mortgage rose to 3.29 percent from 3.1 percent a week ago.
  • The 5/1 adjustable-rate mortgage rose to 3.8 percent from 3.66 percent (with the caveat that many lenders have shifted to the 5/6 ARM).
  • The 30-year fixed-rate jumbo mortgage was 3.92 percent, up from 3.77 percent last week.

Where mortgage rates are headed

Worries about runaway inflation and are weighing on stocks and on U.S. Treasury yields, which have surged past 2 percent. The official inflation figure for January came in at 7.5 percent, its highest level since 1982 and a harbinger of higher mortgage rates.

“The yield on 10-year Treasury notes is now above 2 percent, and there is no sign of a slowdown,” says Ken H. Johnson, a housing economist at Florida Atlantic University. “Inflation is rising. The Fed is acting very hawkish.”

The Mortgage Bankers Association expects refinancing activity to disappear as rates rise. But it also expects a strong home-sales market in 2022.

Mortgage experts offer mixed predictions about the direction of rates in the next week in Bankrate’s latest survey.

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 had expected rates to rise by the end of 2022, but the surge in rates in the past two months has many forecasters wondering what comes next. 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,” Johnson says.

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.

“There are two sides to rising rates,” says Skylar Olsen, principal economist at real estate technology firm Tomo. “Monthly affordability will take a hit, but we’ll also shake off more of the investor types looking for the leverage of a lifetime, so lifting rates could also mean a saner market. Rates that low caused all sorts of households to rush in, and without the supply to match, price growth has been violent. That stresses affordability too. The fundamentals of demographics, life, and built-up savings will still push primary purchases forward. Less heat in housing is good.”

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.”