Mortgage Rates Rise Above 3% For the First Time Since June, Freddie Mac Says

Mortgage rates rose to a three-month high this week as the bond markets reacted to a Federal Reserve decision to start tapering its purchases of fixed assets, Freddie Mac said on Thursday.

The average U.S. rate for a 30-year fixed home loan jumped to 3.01%, the highest since June 24, from 2.88% last week, the mortgage securitizer said in a report. The average rate for a 15-year fixed mortgage is 2.28%, up from 2.15%.

Mortgage rates are rising as bond investors who are the biggest influence on housing finance costs react to the Federal Reserve announcement last week that the central bank would “soon” being tapering the fixed-asset purchases it began in March 2020 to support the economy during the pandemic.

The 10-year Treasury yield, a benchmark for home financing rates, rose to 1.55% yesterday, the highest since June. Mortgage-bond investors are also worried about inflation, which has spiked in recent months because of supply chain disruptions stemming from the global pandemic, said Sam Khater, Freddie Mac’s chief economist.

“Many factors led to this increase, including the Federal Reserve communicating that it will taper its support of the capital markets, the broadening of inflation and emerging energy supply shortages which compound other labor and materials shortages,” he said.

The gain in mortgage rates will add to a deceleration in home-price growth that was already underway as homebuyers balked at record prices, Khater said.

When interest rates rise, it results in higher monthly financing costs, which typically shrink the amount applicants can borrow because lenders qualify homebuyers by comparing their monthly bills to their income using a formula down as the debt-to-income ratio, or DTI.

“We expect mortgage rates to continue to rise modestly which will likely have an impact on home prices, causing them to moderate slightly after increasing over the last year,” Khater said.

In August, the median price for an existing home was $356,700, a gain of 15% from a year earlier, according to data from the National Association of Realtors.

That was a slower pace than the 18% gain in July, the 23% increase in June, and the record 24% jump in May, the data showed.

For the year, home prices likely will increase 14% from 2020, according to Lawrence Yun, NAR’s chief economist. In 2022, the annualized growth pace will be more in line with historical norms, at 4.4%, he said.

“The market is still strong, but less heated than before,” said Yun. “We’re no longer seeing super-frenzied activity” when it comes to price increases, he said.