What's Going on with Mortgage Interest Rates?

Mortgage interest rates fell by nearly one percentage point from 2019 to 2021, largely because of the economic effects of the COVID-19 pandemic. Rates began a slow climb in 2021, although they have so far remained low compared to recent years.

According to data from Freddie Mac, 30-year fixed-rate mortgages hit their recent highest point in 2018, when they climbed above 4.8% at certain times. Rates dropped below 3% in 2020 and barely climbed above that mark in 2021.

The future of mortgage interest rates can only be the subject of speculation. Some economists and industry experts expect interest rates to continue rising in 2022, possibly reaching 4% again. Others predict much smaller increases.

How were mortgage interest rates doing at the end of 2021?

The overall trend of interest rates in 2021 was a recovery from their 2020 low point. Freddie Mac’s data show a monthly average commitment rate of 2.68% for 30-year fixed mortgages in December 2020. Freddie Mac defines “commitment rate” as the rate that a lender would charge a borrower for a conventional mortgage loan, minus points or fees. It provides a useful summary of where mortgage interest rates were during a particular span of time.

Interest rates began a gradual increase in 2021, reaching a monthly average of 3.10% by December. Economic recovery was probably the single biggest factor behind this slow rise. As the economy improved, however, COVID-19 continued to rear its head and disrupt economic and social activity. The trend for 2021 as a whole was upward, but it had multiple dips along the way.

The appearance of new variants of SARS-CoV-2, the virus that causes COVID-19, could explain drops in interest rates throughout the year. The Delta variant, for example, became the dominant form of the virus in June 2021. A drop of over 0.1 percent in the monthly average commitment rate followed in July.

How are mortgage interest rates doing at the beginning of 2022?

Mortgage interest rates continued to rise in the early weeks of January 2022, but then they dropped a bit. Rates for 30-year mortgages went above 3.6% for the first time in almost two years in the middle of the month. They dropped back to around 3.55% towards the end of the month, which is still a significant increase over rates in 2020 and 2021.

Where could mortgage interest rates be headed in 2022?

Most economists and mortgage industry experts are predicting that mortgage interest rates will continue to rise during 2022. The main point of contention involves how much they believe they will rise:

• Michael Fratantoni, the chief economist for the Mortgage Bankers Association (MBA), thinks that rates could rise to 4% by the end of the year. The MBA’s Mortgage Finance Forecast for January 2022 shows the 30-year fixed rate at 4.0% by the fourth quarter.

• Lawrence Yun, the chief economist at the National Association of Realtors (NAR), sees a slightly less dramatic rise to 3.7% this year.

• Selma Hepp is the Deputy Chief Economist at CoreLogic, a company that provides information and analytics to real estate professionals. She predicts that mortgage interest rates will rise to about 3.4% in 2022.

Possible reasons for the rebound in interest rates this year may include:

• Continued economic improvement and increased demand: As the economy continues to grow and improve, buyer demand has increased. Basic economic theory holds that the greater the demand for something, the more it is likely to cost. As more people decide they want to buy homes, more people are applying for mortgage loans. This tends to lead to increased interest rates.
• Inflation: 2021 and, so far, 2022 have seen rather high rates of inflation. The Personal Consumption Expenditures index, which measures the prices of goods and services, rose 5.8% at the end of 2021. The consumer price index rose by 7% in 2021, the largest increase in nearly forty years. Inflation usually results in higher interest rates.
• Federal Reserve policies: The Federal Reserve, also known as the Fed, has signaled that it might change some of its practices in the coming months as a prelude to raising interest rates. After a January 2022 meeting, a major Fed committee stated that it intended to cease bond purchases in March. It could start raising interest rates as soon as the middle of that month when it has another meeting scheduled. This news may have already begun to affect the mortgage market.

Of course, other factors could intervene and change mortgage interest rates’ current upward momentum. If another COVID variant comes along, for example, and requires another economic slowdown, that would certainly have an effect.

Become A Homeowner

Now is a great time to buy a home. Owning a home saves you money over time when compared to renting. If you’re concerned about where interest rates might be heading, the Wood Group of Fairway is here to answer your questions and help identify mortgage options that will work for you and your particular situation.

Get started now with the mortgage lender Texans trust!