Mortgage Rates Continue Higher This Week

 

The average 30-year fixed mortgage rate hit 4.72% on Tuesday, the highest in over a decade. This is up from the historically low years of 2020 and 2021, due to the Fed's shedding of mortgages. In addition, the 15-year fixed-rate mortgage hit 4.38 percent on Tuesday, up from 4.31 percent a week ago and 2.24 percent a year ago. That isn't necessarily a bad thing, though.

Freddie Mac's average 30-year fixed-rate mortgage hit 4.72% on Tuesday

The interest rate on the most popular type of mortgage topped 5% this week, the highest level in more than three years. The 30-year mortgage, which was at 4.67% last week, has risen nearly a full percentage point since May, and has now reached 4.72%. In addition to this sharp increase, other mortgage rates have increased this week, too, with the 15-year fixed-rate mortgage rising to 4.38% and the 5/1 adjustable-rate mortgage hitting a record high of 4.12%.

While the 30 year fixed rate is still near the historic low, there are signs that the trend might be turning. Mortgage rates are still historically low, with the 30-year fixed-rate average rising to 5% this week from 3.04% a year ago. Nonetheless, strong credit applicants can still get great deals on their mortgages. This week's rate spike is another sign that mortgage rates will continue to rise.

It's the highest it's been in more than a decade

Prices are on the rise in the U.S., and that's not good news for holiday shoppers. Prices are increasing at the grocery store, gas pump, and mall, and inflation is at its highest level in more than a decade. The latest inflation figures from the Labor Department show that consumer prices rose 6.2% over last year, the largest one-year jump since 1990. And there's no sign that the rate of increase is slowing down.

The year 2020 was the second-warmest on record for the land and ocean surface. Europe and Asia were among the most warmly recorded regions on record, and most of the Atlantic and Indian oceans were warmer than average. At one point during December, a moderate La Nina event dampened the overall warmth, but December was still the eighth warmest December on record. In the last few years, the global average temperature has increased by as much as one degree.

It's up from the historically low years of 2020 and 2021

As we look ahead, the next decade is projected to be more of a roller coaster than the last. Interest rates plunged to new historical lows, and inflation hit its highest level since the 1980s. Then, in 2020, a pandemic of COVID-19 swept across the United States. Public health officials ordered people to shelter in place, and the Federal Reserve cut the federal funds rate to 0%.

It's due to the Fed's shedding of mortgages

Mortgage rates are rising faster than the yield on the 10-year Treasury. This is due to the Fed's shedding of mortgage-backed securities. The Fed has accumulated so many mortgages in the past several years, when rates were low and stable. As they shed the mortgages, the mortgage market will suffer from increased volatility. But this isn't the end of the world. Home prices will continue to rise, and they will exceed the peaks of the Housing Bubble 1 in 2008.

In the months following the financial crisis, the Federal Reserve is expected to sell trillions of dollars in mortgage-backed securities. This is the final step in the Fed's stimulus campaign after the financial crisis. The Fed has pledged to begin reducing its mortgage-backed securities holdings this month. The reduction will take place gradually. In June, the Federal Reserve plans to shed $17.5 billion of its mortgage-backed securities each month. Then, after August, the Fed plans to shed another $35 billion each month.

It's due to inflation

While many people think of inflation in terms of everyday prices, mortgage rates are very different. Mortgages act like bonds, and as interest rates rise, so do mortgage rates. Recent fears of post-COVID inflation have some investors predicting higher mortgage rates in the year 2021. However, this is not a sure thing. The question remains, what are the real reasons for the rising mortgage rates? Read on to find out.

The Fed, which meets eight times a year, adjusts interest rates. On March 16, the Fed raised the federal funds rate by 0.25%. The federal funds rate is the rate banks charge each other for overnight loans to meet their reserve requirements. Mortgage rates generally rise before the Fed raises short-term interest rates. But, if the Fed decides to raise the federal funds rate again, that could cause more volatility.

It's because of increased economic activity

A rise in the federal funds rate is causing mortgage rates to climb. The Federal Reserve hiked the key interest rate in March and has already signaled that further increases will be coming. Mortgage rates have risen by one full percentage point since the start of the year, and are expected to continue to climb for the rest of the year. The recent rise in mortgage rates has made home buyers and equity borrowers pay more for their mortgages. This increase in mortgage rates is directly attributed to the actions taken by Fed policymakers at the early stages of the pandemic. The pandemic led to millions of workers being laid off, and the financial system was stressed.

Despite the high demand for homes, interest rates are unlikely to increase for another three months. This increase is likely to support the home price appreciation. However, borrowers who choose to invest their money in mortgage bonds will demand a higher interest rate than the Fed has set. This will increase interest rates. Meanwhile, the Fed plans to sell $17.5 billion worth of mortgage bonds per month starting June 1, and another $37.5 billion in three months.