Rising mortgage rates squeeze both homeowners and buyers

·Personal finance writer
·3 min read

Mortgage rates surged again this week on inflation concerns, hitting the highest point in 22 months that sent homebuyers scrambling to lock in rates.

Many homeowners, on the other hand, face a shrinking opportunity to refinance.

The rate on the 30-year fixed rate mortgage – the most common home loan for buyers – increased to 3.56% from 3.45% last week, according to Freddie Mac. That is the highest rate since the third week of March 2020. The 15-year fixed-rate mortgage, a popular refinance choice, similarly increased to 2.79% from 2.62%.

“Mortgage rates moved up again as the 10-year U.S. Treasury yield rose and financial markets adjusted to anticipated changes in monetary policy that will combat inflation,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

Fixed mortgage rates tend to follow the yield on the 10-year Treasury, which has jumped to its highest level since December 2019 on expectations that the Federal Reserve will make moves — including hiking its short-term benchmark rate — to tame inflation.

(Credit: Freddie Mac)
(Credit: Freddie Mac)

‘Buyers rushed to beat the quickly rising mortgage rates’

Despite the winter season when housing activity is rather dormant, homebuyers this year have remained in the market to take advantage of current rates before they increase further, according to George Ratiu, Realtor.com’s manager of economic research.

“Purchase applications rose last week, as buyers rushed to beat the quickly rising mortgage rates," Ratiu said.

The volume of mortgage applications to purchase a home increased 8% last week, according to the latest index reading from the Mortgage Bankers Association (MBA). Other headwinds in the market — notably low inventory, fierce competition, and rapidly rising prices — also are forcing buyers to move forward now, despite higher rates.

A house on sale is seen in Washington D.C., the United States on Dec. 12, 2021. U.S. annual home price growth remained strong at 18 percent in October, the highest recorded in the 45-year history of the index, according to CoreLogic's Home Price Index. (Photo by Ting Shen/Xinhua via Getty Images)
A house on sale is seen in Washington D.C., the United States on Dec. 12, 2021. U.S. annual home price growth remained strong at 18 percent in October, the highest recorded in the 45-year history of the index, according to CoreLogic's Home Price Index. (Photo by Ting Shen/Xinhua via Getty Images)

Refinance activity abates

For homeowners, the chance to refinance into a lower rate may have passed them by. The volume of refinance applications slipped 3% last week, according to the MBA, and stands 49% lower than a year ago, when the 30-year fixed rate mortgage was 2.77% and the 15-year rate averaged 2.21%.

Refinance activity is at the slowest pace in over two years, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting. On top of that, refinance originations are projected to drop to $870 billion this year from an estimated $2.32 trillion in 2021, according to the MBA’s mortgage market forecast for year-end 2021 and 2022.

The number of potential refinance candidates fell to 5.9 million this week, according to figures mortgage technology and data provider Black Knight gave Yahoo Money, down from 11 million in December.

Still, the 5.9 million U.S. homeowners could benefit from refinancing and save an aggregate $1.6 billion monthly, or about $275 a month per borrower at today’s rates. But that number is likely to shrink as the average 30-year mortgage rate is expected to reach 4% by the fourth quarter, according to MBA forecasts.

“A scenario where we reached that point would see a population cut in half yet again, with fewer than 4 million high-quality candidates remaining,” said Andy Walden, Black Knight’s vice president of enterprise research and strategy.

Editor's note: This version corrects the number of potential refinance candidates to 5.9 million.

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Gabriella is personal finance reporter at Yahoo Money. Follow her on Twitter @__gabriellacruz.

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