Americans who have bought new homes or refinanced their mortgages in the past few months may have done so at the right time.
The average rate on a 30-year fixed-rate mortgage rose to 3.02%, said mortgage finance giant Freddie Mac on Thursday. It is the first time that the rate for America’s most popular home loan has risen above 3% since July and, for the fifth consecutive week, it has increased or remained stable.
Mortgage rates fell for most of 2020, after the Covid-19 pandemic devastated the economy. This helped fuel the biggest mortgage lending boom since before the financial crisis, fueled by refinancing. When rates reached 2.98% in July, it was the first time below the 3% mark in about 50 years of record keeping.
Recent upward movements paint a clear contrast: more vaccinations in the U.S. and recent progress on the latest coronavirus relief bill have improved investors’ outlook on the economy, a key variable in determining loan rates.
Mortgage rates tend to move in the same direction as the 10-year Treasury yield, which has been rising. Treasury yields increase when investors feel confident enough in the economy to give up safe-haven assets, such as bonds, for riskier bonds, including stocks. Last week, the yield reached its highest level in a year.
Freddie Mac’s chief economist Sam Khater said he expects a strong sales season, partly because he believes “the upward trend in rates here will be more subdued than in recent weeks”. The Federal Reserve said it will maintain ultra-low interest rates until the economy improves.
“The Fed has seen the carnage of the last crisis and does not want to stop the recovery by starting to raise rates and stifle the nascent recovery,” said Khater.
However, rising rates have started to weigh on home buying and refinancing apps in recent weeks.
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Higher mortgage rates may discourage some potential buyers from trying to buy a home during the spring sales season, because higher interest rates translate into higher monthly payments. This can lead people to look for a cheaper home or to suspend the ownership goal.
Even before the recent rate hike, rising home prices in the United States began to offset the savings from historically low lending rates. The typical monthly mortgage payment in the fourth quarter rose to $ 1,040 from $ 1,020 a year earlier, even as mortgage rates dropped, according to the National Association of Realtors.
Rising rates could also curb refinancing, which accounted for about 60% of mortgage origins in 2020, according to the Mortgage Bankers Association.
At a 2.75% 30-year rate, about 18 million U.S. homeowners could reduce their monthly payments through refinancing, according to mortgage data company Black Knight Inc.
When the rate rises to 3.25%, the pool of eligible owners decreases to around 11 million.
Homeowners like Lindsay Ellis, of Charlotte, North Carolina, who closed the refinancing process last month, may have stalled some of the lowest mortgage rates available for the foreseeable future.
Ms. Ellis cut her condominium fee from about 4.6% to 2.9% through refinancing with Rocket Cos. She has not decided where to put the $ 160 monthly savings, but plans to explore different investment options.
“I didn’t have to do a lot of work to research and compare the rates because the rate they gave me was great,” she said.
Ms. Ellis would not have qualified for refinancing when rates started to drop last year because unemployment benefits kept her afloat for part of 2020. Ms. Ellis, a fitness director, was released from her job at St. Patrick’s Day and was unable to return until autumn. She started considering refinancing soon after.
Write to Orla McCaffrey at [email protected]
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