Americans who have bought a new home or refinanced their mortgage in recent months may have done so at the right time.
Average interest on a 30-year fixed-rate mortgage rose to 3.02%, mortgage giant Freddie Mac said Thursday. It is the first time that the rate on America’s most popular home loan has risen above 3% since July and has risen or remained stable for the fifth consecutive week.
Mortgage rates fell for most of 2020 after the Covid-19 pandemic ravaged the economy. That contributed to the biggest boom in mortgage lending since before the financial crisis, fueled by refinancing. When rates hit 2.98% in July, it was the first time below 3% in about 50 years of record keeping.
The recent upward moves provide a clear contrast: more vaccinations in the US and recent advances on the latest coronavirus aid law have improved investors’ views of the economy, a key variable in determining borrowing rates.
Mortgage rates tend to move in the same direction as the yield on the 10-year Treasury, which is on the rise. Government bond yields rise when investors are confident enough in the economy to forgo safe-haven assets such as bonds for riskier assets, including stocks. Last week the yield reached the highest level in a year.
Sam Khater, Freddie Mac’s chief economist, said he expects a strong selling season, in part because he thinks “the rise in rates from here will be more muted than in recent weeks.” The Federal Reserve has said it would maintain ultra-low interest rates until the economy improves.
“The Fed has been through the carnage of the latest crisis, and they don’t want to pre-empt the recovery by raising rates and stifling that nascent recovery,” said Mr Khater.
However, the rising rates have started to weigh on home purchases and refinancing requests in recent weeks.
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Higher mortgage rates could discourage some potential buyers from trying to buy a home during the important spring sales season, as higher interest rates translate into larger monthly payments. That can prompt people to look for a cheaper home or put their home ownership goal on hold.
Even before the recent interest rate hike, rising US house prices began to outweigh the savings offered by historically low interest rates. The typical fourth-quarter monthly mortgage payment rose from $ 1020 a year earlier to $ 1,040, even as mortgage rates fell, according to the National Association of Realtors.
Rising interest rates could also hold back refinances, which accounted for about 60% of mortgage production in 2020, according to the Mortgage Bankers Association.
With a 30-year interest rate of 2.75%, according to mortgage data company Black Knight, about 18 million homeowners in the US could cut their monthly payments through a refinance. Inc.
When the rate rises to 3.25%, the pool of eligible homeowners shrinks to about 11 million.
Homeowners like Lindsay Ellis of Charlotte, NC, who closed a refinance last month, may have locked in some of the lowest mortgage rates available for the foreseeable future.
Mrs. Ellis has lowered the rate for her apartment from about 4.6% to 2.9% through a refinancing with Rocket Cos. She hasn’t decided where to put the roughly $ 160 in monthly savings, but she plans to explore several investment options.
“I didn’t have to do a lot of work looking around and comparing rates because the rate they gave me was great,” she said.
Ms. Ellis would not have qualified for a refinance when rates started to drop last year as unemployment benefits kept her afloat for part of 2020. Ms. Ellis, a fitness director, was returning last St. until the fall. Shortly after, she began to consider refinancing.
Write to Orla McCaffrey at [email protected]
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