At the start of April, it was announced mortgage rates in the U.S. have risen for a seventh straight week. The average for a 30-year loan was 3.18%, which was up since last week when it was 3.17%. That was the highest since June, according to Freddie Mac data.
Rates have gone up from their record low in January, which was 2.65%.
The increase has meant homes are more expensive for buyers, and that’s coupled with the pressure of competing for a low inventory of properties.
There have been bidding wars, particularly in certain parts of the country, as people have been moving out of apartments and urban areas, searching for more space during the pandemic.
The National Association of Realtors reported their index of contracts to buy previously owned homes did go down in February, by the most since April 2020. While much of the real estate boom ended up being fueled by shifts brought about by COVID, April 2020 was a tough month for real estate because country-wide lockdowns were stopping potential deals.
Freddie Mac’s chief economist Sam Khater said that purchase demand is still strong, but some buyers are starting to feel the pinch of the increased mortgage rates and reduced affordability and inventory frustrations.
Refinancing booms have also started to slow, which could be problematic for the mortgage industry, following their record 2020.
It’s possible that borrowing costs could keep going up, and yields for the 10-year treasuries are climbing as well.
The rate trajectory for the rest of the year does depend quite a bit on the strength of the economic recovery. There is optimism thanks to available coronavirus vaccines, but mortgage rate increases are showing the foreshadowing of a very strong economic recovery. If that doesn’t come to fruition, rates may stop their decline or start moving in the other direction.
However, some experts, like the Mortgage Bankers Association, expect rates could go as high as 3.6% by the end of 2021. The forecast three months ago from the same group was for rates to go to 3.5% late in 2021.
So what does all this mean?
Many analysts are expecting a pretty significant pullback in refinancing. It’s likely to slow quite a bit by the second half of 2021.
Even though the expectation is that mortgage rates will go high enough to slow refinancing, experts believe that they’ll still be at a point that’s low enough to encourage buyers.
Michael Fratantoni, chief economist at the Mortgage Bankers Association, believes that there will be a record volume of mortgages in 2021.
While the Federal Reserve doesn’t directly set mortgage rates, it does create an environment that lends itself to rates. The Fed cut rates when the pandemic recession started, and they have continued to signal they will keep rates low. There is a significant correlation between the rate on a 10-year Treasury bond and a 30-year mortgage.
Fratantoni said they think the Fed will continue to keep short-term rates at around zero through 2022 and only begin to slowly raise rates in 2023.