Mortgage rates topped 3% for the first time since late June, as expectations for higher interest rates overall increased after comments from the Federal Reserve chairman this week.
The rate on the 30-year fixed mortgage — the most common home loan for homebuyers — increased to 3.01% this week, according to Freddie Mac, up from 2.88% last week.
That’s the highest level since the week of June 24 when rates stood at 3.02% and the largest one-week increase since late February.
“Mortgage rates rose across all loan types this week as the 10-year U.S. Treasury yield reached its highest point since June,” Freddie Mac Chief Economist Sam Khater said in a statement. “Many factors led to this increase, including the Federal Reserve communicating that it will taper its support of the capital markets, the broadening of inflation and emerging energy supply shortages which compound other labor and materials shortages.”
The higher rate weighed on mortgage applications, according to the Mortgage Bankers Association. The trade group’s gauge of mortgage activity decreased 1.1% on a seasonally adjusted basis from one week earlier. Measures for both purchase and refinance mortgage applications fell 1% from a week earlier.
“The increase in rates — mostly later in the week — led to a decrease in both purchase and refinance applications, with a prominent decline in government loan applications,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a statement. “Conventional loan applications increased, driven by a rise in conventional refinances. This was perhaps a sign that some borrowers reacted to higher rates and decided to refinance.”
Freddie Mac's Khater said the increase in rates may help to moderate rapidly accelerating home values.
Housing values jumped 19.7% year-over-year in July, up from 18.7% in June and the fourth month in a row setting record high growth, according to the S&P CoreLogic Case-Shiller national home price index released this week. The 20-City Composite grew 19.9% in July, up from 19.1% a month earlier and just shy of analysts’ expectations of a 20% annual gain, according to Bloomberg consensus estimates.
Homebuyers should build in any increases into their budget, said Realtor.com Chief Economist Danielle Hale in an email, noting that autumn is one of the best times of the year to purchase a home, especially this year when housing inventory finally hit 2021 highs in September.
“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,” she said.
“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.”
For instance, the monthly mortgage payment on a median-priced home is about $150 higher than it was a year ago, she noted, with $25 of that increase because of higher rates and $125 due to higher home prices.
“While uncertainty over a variety of legislative priorities — from infrastructure plans to the debt limit — increase the potential for surprises and volatility in rates,” Hale said. “The likely near-term trend is for rates to move higher.”