January Marks Rapid Increase of Mortgage Rates

January 28th, 2022  / Author: Cesar Gomez

This month’s mortgage rates hit the highest numbers since the start of the pandemic. The beginning of last year marked the lowest rates since 2006 circling 2.6% on a 30-year fixed loan but the rates have just gone up following June of 2021.

The 30-year fixed interest rate is 3.64% as of 27th January 2022, and to compare - we entered the year with a 3.11% borrowing cost. The rate on a 15-year fixed loan is around 2.9%, almost the same as last year’s 30-year fixed, which was 2.93% exactly a year ago. A jump in 23 basis points happened in the second week of January, and it is the biggest jump in the last two years.

Borrowers that loaned $300,000 with mortgage rates as high as 2.65% are paying $1,209 a month. Those who loan the same amount of money right now will pay $100 more every month for the next 30 years.

The increase was expected in view of the fact that demand was record-high, while supply stayed behind. What was unexpected was the rapidness of the growth, accelerated by surging inflation in the States. The US inflation rate rose 7% in 2021, compared to prices in 2020. The US has not seen larger year-over-year inflation since the early 1980s.

This prompted the Federal Reserve to readjust its bond purchase. As the inflation rates soar and the job market stays strong, the Fed sees less and less need for policy support. They are planning to hike rates thrice this year to battle a jump in inflation. This is indirectly affecting the mortgage rates.

The Fed is not deciding on mortgage rates but the rates for short-term loans, and they do it eight times a year. Before each meeting, the investors usually have a consensus on whether or not the rates would change, so they give the heads up to the main players in the mortgage business. This is how the Fed and the mortgage rates follow one another.

The only thing that could have kept the Fed from hiking the rates and ending its bond purchases was the influx of Omicron variant cases. But since there are over 10 million job openings, it seems like the Omicron variant did not affect the strength of the job market.

All signs refer to mortgage rates going up throughout the year, but experts are having different opinions when it comes to the state of the housing market. Some are saying that the Fed’s tightening of resources can help recede inflation, which can stabilize the increase of the mortgage rate.

Others are afraid that a 4% mortgage rate could lead to a housing market collapse. As many homeowners are now locked in a low fixed rate, they would be less eager to sell their home and buy a new one under less favorable conditions.

The demand is expected to stay robust, but the inflation and the influx of supply could make it bearable for potential homebuyers - after almost two years of bidding wars. Mortgage rates, although on the rise, are still lower than the ones before the coronavirus hit the world.



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