Mortgage Rates Jump above 3%. Does it really matter?

Dated: October 4 2021

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The 30-year fixed-rate mortgage averaged 3.01% for the week ending Sept. 30, up 23 basis points from the previous week, Freddie Mac reported this week. A year ago, the 30-year fixed-rate mortgage was averaging 2.88%.

“At today’s rate, the monthly mortgage payment on a median-priced home for-sale is roughly $150 higher than it was a year ago with $25 of the increase owed to higher rates and $125 owed to higher home prices,” said Danielle Hale, chief economist for Realtor.com.

The rise in mortgage rates followed the upward climb of the 10-year U.S. Treasury yield over the past week—the long-term bond rose to the highest level since June. In both cases, the surge in interest rates came as a reaction to last week’s statement from the Federal Reserve. The central bank signaled it would begin tapering the asset-buying activities that it began last year in an effort to stimulate the economy. The central bankers also indicated that an interest-rate hike could come in 2022.

Among the assets that the Fed has been buying on a monthly basis are mortgage-backed securities. Those purchases by the central bank helped to pump a ton of liquidity into the mortgage market, which allowed lenders to cut interest rates. With the size of the Fed’s purchases likely to decrease later this fall, lenders will be forced to increase rates, according to economists.

That could have ripple effects into the broader housing market. “Mortgage rates remain low and are supporting demand” for homes, Rubeela Farooqi, chief U.S. economist for High Frequency Economics, wrote in a research note Thursday. “However, the incentive to buyers could diminish if rates rise once the Fed starts tapering.”

For buyers still in the market, it will become important to factor in the potential for rising interest rates when determining their budgets.

Smart buyers should consider calculating a monthly payment not only at today’s rates, but also at rates that are a bit higher so that they won’t be derailed by a sudden upward move. Additionally, home shoppers want to carefully consider their must-haves versus nice-to-haves since both rising home prices and higher rates mean higher monthly payments.

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Thomas Wohl

Living in the Triangle for over 25 years now, I'm excited to show my clients all the things I love about this area and why I've chosen this as my home away from home! Originally from Europe, my youth ....

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