The Incoming Rise of Mortgage Rates
Last week, lender Freddie Mac released their Primary Mortgage Market Survey, which shows the recent 30-year fixed mortgage rate. The rate was at 3.01%, the first time in three months since it was over 3%. Sam Khater, Chief Economist at Freddie Mac, explained in a press release:
"Mortgage rates rose across all loan types this week as the 10-year U.S. Treasury yield reached its highest point since June.”
The reason Khater mentions the 10-year U.S. Treasury yield is because there has been a very strong relationship between the yield and the 30-year mortgage rate over the last five decades.
Here’s a graph showing that relationship:
The relationship has also been consistent throughout 2021 as evidenced by this graph:
The graph also reveals the most recent jump in mortgage rates was preceded by a jump in the 10-year Treasury rate (called out by the red circles).
So what causes the Yield Rate to change?
The Yield Rate is impacted by interest rates, inflation, and economic growth. Due to the pandemic, there is a concern for inflation and slow economic growth. That concern caused the fixed interest rates to go up.
“We expect mortgage rates to continue to rise modestly which will likely have an impact on home prices, causing them to moderate slightly after increasing over the last year,” Sam Kater added.
Nadia Evangelou, Senior Economist and Director of Forecasting for the National Association of Realtors (NAR), also addresses the issue:
“Consumers shouldn’t panic. Keep in mind that even though rates will increase in the following months, these rates will still be historically low. The National Association of REALTORS forecasts the 30-year fixed mortgage rate to reach 3.5% by mid-2022.”
It is difficult to predict mortgage rates. Mark Fleming, Chief Economist at First American has said, "You know, the fallacy of economic forecasting is don’t ever try and forecast interest rates and or, more specifically, if you’re a real estate economist mortgage rates, because you will always invariably be wrong.”
The Aaronson Group can help!
If you are thinking about moving to a home that better fits your needs or are a first-time buyer, keep watch on where the interest rates are at. The rates can prove a huge factor in taking that step. Contact The Aaronson Group today at 949-388-5194 or email info@previewochomes.com for advice in navigating the real estate market.