Mortgage rates up to highest level in months after historically low run

Janna Herron
·Editor
·4 min read

Mortgage rates edged closer to 3% this week, pulling further away from the historic lows reached at the beginning of January.

The average rate on the 30-year fixed mortgage — the most common home loan — jumped to 2.97% from 2.81% the week before, according to Freddie Mac, a government-sponsored agency that guarantees millions of mortgages. That's the highest level since mid-August.

Read more: Mortgage rates near all-time lows: Is it time to refinance?

"The market was responding to a couple key factors of economic growth — and good news for the economy usually means higher mortgage rates," Christian Wallace, head of sales at the digital homeownership company Better.com, told Yahoo Money, noting another round of potential government stimulus and the largely smooth rollout of the COVID-19 vaccine. "Much of the economy’s recovery depends on that rollout, so its progress is likely to push rates up."

(Graphic: Freddie Mac)
(Graphic: Freddie Mac)

Still, the recent increase in rates dampened demand for refinances and home purchases alike. Homeowners and buyers had pounced when rates hit an all-time low of 2.65% in the first week of January.

The volume of refinances dropped 9% last week from the previous one, according to the Mortgage Bankers Association Index that measures new mortgage activity. Applications for mortgages to purchase new homes also were lower by 12%, seasonally adjusted.

Read more: Near record low mortgage rates: Should you cash out and refinance?

While economists expect higher rates will continue throughout the year as the economy begins to recover from the pandemic, the uptick won't be without starts and sputters.

"While we expect generally higher rates this year, we don't expect rates to move up without ever dipping back," Danielle Hale, chief economist for Realtor.com, told Yahoo Money. "It's likely that we won't see new all-time lows, but it's also possible that rates will fall back in the weeks ahead before picking up again."

SCITUATE, MA. - DECEMBER 17:  A house for sale on December 17, 2020 in Scituate, Massachusetts.   (Staff Photo By Matt Stone/ MediaNews Group/Boston Herald)
A house for sale on December 17, 2020 in Scituate, Massachusetts. (Staff Photo By Matt Stone/ MediaNews Group/Boston Herald)

'They should consider a range of possible rates'

Homeowners looking to refinance need to be prepared to act quickly when rates get to a level that makes getting a new home loan financially beneficial. Additionally, 14.8 million qualified homeowners could shave their interest rate by three-quarters of a point at current rates, according to figures provided to Yahoo Money from Black Knight Inc., a data analytics company.

For potential buyers coming into the spring buying season, rates are still favorable — near historic lows, Hale said. Other factors also determine what mortgage rate a buyer will get such as the size of down payment, how much other debt they carry, and their credit score.

Read more: Here's the history of the 30-year fixed mortgage rate

"For would-be buyers, today's data is a reminder of just how much rates can move from week to week, so they should be prepared and know what different rates mean for their monthly budget and target house price," Hale said. "They should consider a range of possible rates, so they'll know how sensitive they need to be to changing rates and how much wiggle room they want to leave in their monthly budget and target house price."

Real estate broker Rebecca Van Camp places a âEURoesoldâEUR placard on her sign in front of a home in Meridian, Idaho, on Wednesday, Oct. 21, 2020. She started Relocate208, a real estate business that caters to people moving to Idaho.  (Darin Oswald/The Idaho Statesman/Tribune News Service via Getty Images)
Real estate broker Rebecca Van Camp places a "sold" placard on her sign in front of a home in Meridian, Idaho, on Wednesday, Oct. 21, 2020. (Darin Oswald/The Idaho Statesman/Tribune News Service via Getty Images)

Hale's forecast for mortgage rates remains unchanged, with rates averaging 3% for the year and ending 2021 around 3.4%, nearly the same level seen a year ago today.

The largest challenge for buyers remains actually finding a home to buy, according to Francesca Ortegren, a data scientist at Clever Real Estate. At the end of January, the number of homes for sale dropped by 25.7% year over year — a record decline — to a historic low of 1.04 million units, according to the National Association of Realtors.

"The biggest hinderance for buyers this year will be competition from other buyers," Ortegren said, "as we continue to see fewer homes on the market than average throughout the pandemic and expect that to continue through the spring."

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Janna is an editor for Yahoo Money and Cashay. Follow her on Twitter @JannaHerron.

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