Mortgage rates are highest since March 2020

The 30-year fixed-rate mortgage averaged 3.45% in the week ending January 13, up from an average of 3.22% the previous week, according to Freddie Mac. It’s the highest rate it’s been since March 2020, when it was 3.5%.

“Mortgage rates are up on all types of mortgages, with the 30-year mortgage increasing by nearly a quarter of a percent from last week,” said Sam Khater, chief economist at Freddy Mac. “The rise in mortgage rates so far this year has not yet affected buying demand, but given the rapid pace of home price growth, demand is likely to weaken in the near future.”

Another reason for higher rates is that the economy is improving in general, said George Ratio, director of economic research at Realtor.com.

“The moderating effect of the Omicron wave, despite the large number of cases, points to a brighter post-pandemic horizon, a sentiment that supports a more optimistic view of the economy,” said Ratio.

But rising mortgage rates combined with record low inventory and higher home prices may push some buyers out of the market.

At today’s rates, median-priced home buyers pay about $219 more per month than last year, adding more than $2,600 to annual housing costs, Ratio said.

“With prices of most consumer goods and services on the rise, buyers are feeling tight in their wallets,” Ratio said. “Affordability remains a major challenge for first-time buyers this year.”

There are also indications that some homebuyers have started shopping earlier than the usual spring buying season, Ratio said.

Last week, mortgage applications rose slightly from the previous week, according to the Mortgage Bankers Association. With so many people looking to buy a home, Joel Kahn, associate vice president of economic and industrial forecasting at the MBA, said he expects the number of applications for new mortgages to remain strong.

He said applications for government-backed loans — an attractive option for first-time home buyers and those with less money for a down payment or lower credit scores — have also increased, with applications for Federal Housing Administration (FHA) loans and VA loans arriving.

“The housing market started in 2022 on a strong note,” Kahn said. “The MBA expects strong growth in purchasing activity this year, as demographics and a strong economy support housing demand. However, the strength of growth will depend on housing stock growing faster to meet demand.”

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