Are Higher Rates Ahead?

Are higher rates ahead in the cards for home loans and, when can potential home buyers or those looking to refinance current loans expect to see higher borrowing costs? Well, for the first question, the market has already seen an uptick in rates as the year ends from where they were last January.

The 30-year fixed-rate mortgage hit an all-time low of 2.65% back in January and has since increased to near the yearly high to 3.33%. Still, that number is historically low, considering rates were around 18% in the 1980s. The problem is that a lot of those now on the hunt for a mortgage or refinance only know these low rates.

Could they go higher?

“We expect rates to continue to increase into 2022, which may leave some potential homebuyers with less room in their budgets on the sideline.” – Sam Khater, Freddie Mac’s Chief Economist. The consensus is that given the uptick in inflation and the Fed’s announcement that it will begin to purchase less or taper its current Mortgage-Backed and Treasury security programs along with decent economic growth, rates will most likely increase.

Freddie Mac is forecasting that the 30-year fixed-rate mortgage will average 3.5% in 2022 which would still peg it at the low end of the range historically.

Despite the inflation talk, the yield on the benchmark U.S. 10-year T Note yield remains relatively low due in part to the current Fed buying, which will end in March. Also, the fact that U.S. government yields are higher than most of the world and the safest place for investors to park their money is another reason our rates are low.

Bottom line: If you’re considering a purchase or refinance, now is the time to secure a home loan before we return to pre-pandemic mortgage rates.

Source: Mortgage Market Guide