MortgageMortgage Rates

Mortgage rates climb to 3.09%

Rise comes as Treasury yields hit highest level since May

The average 30-year-fixed rate mortgage climbed to 3.09% during the week ending Oct. 21, rising from 3.05% the week prior, according to the latest Freddie Mac PMMS Mortgage Survey. A year ago, the 30-year fixed-rate mortgage averaged 2.80%. Most economists believe they’ll continue to climb.

“Mortgage rates continued to rise this week due to the trajectory of both the economy and the pandemic,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

The rise in mortgage rates moved in concert with the 10-year Treasury yield, which reached 1.65 yesterday, its highest rate since May.

The bond market for months has been preparing for the Federal Reserve to begin tapering its $120 billion in monthly asset purchases, which will send rates further north.

According to the minutes from the central bank’s September meeting, that tapering is expected to come as soon as mid-November. The target date to end the purchases – which includes $80 billion in Treasury securities and $40 billion in mortgage backed securities – would be mid-2022. Observers believe the central bank will also raise short-term interest rates in the coming months.

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The refi mortgage market, which is more rate-sensitive than the purchase market, is expected to suffer. Refinances are forecast to fall 14% to $860 billion in 2022, and economists at the Mortgage Bankers Association have predicted that mortgage rates will climb to 4% by the end of next year.

Rising mortgage rates and paltry inventory will make things harder for homebuyers as well.

“Even as the availability of existing homes is improving, prices remain high due to homebuyer demand and limitations on housing starts and permits resulting from the ongoing labor and material shortages,” Khater said. “Despite these countervailing forces, we expect the housing market to remain strong as we head into the end of the year.”

The MBA has forecast purchase mortgage volume to hit a record $1.73 trillion in 2022, up 9% from the projected 2021 total. The expected record is largely due to the rise in home prices, and not necessarily the raw number of home sales. Supply chain issues for homebuilders are still expected to be present in 2022, though a number of housing economists believe they’ll ease up somewhat.

Rising mortgage rates – up about 20 basis points in the past month alone – have already begun to sap demand. Mortgage application activity dropped 6.3% for the week ending Oct. 15, according to the most recent MBA survey.

The 15-year-fixed-rate mortgage averaged 2.33% last week, up from 2.30% the week prior. A year ago at this time, it averaged 2.33%.

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