Mortgage rates are climbing above 3%. Are record rates permanently lost?


Rates drop to 3% for the first time since June

30-year mortgage rates have remained in the 2% range for most of 2021, according to Freddie Mac.

But this week, they surpassed 3% for the first time since June.

Further rate hikes this year have been followed by steep cuts. But these new, higher rates could be here to stay.

As the economy improves and the Fed withdraws its stimulus soon, strong forces are pushing rates higher.

Borrowers who thought record rates were the new normal might want to reassess. Today’s rates could be the lowest we will see for a while.

Find your lowest rate before it goes up. Start here (September 30, 2021)

Higher Rates Are Here – To Stay?

Most economists and mortgage experts have predicted higher interest rates since the start of the year.

With widespread vaccinations, the reopening of businesses and travel, and consumer confidence on the rise, our economic outlook looked good. And a better economy should lead to higher rates.

We even saw a false start in March and April, when rates hit 3.18%, their highest level this year.

Source: Freddie Mac

But then the Delta variant hit, and it wasn’t clear how things were going to turn out for the financial markets. The rates have therefore fallen.

Now it looks like we are finally seeing those long-awaited “higher rates” starting to materialize.

Why are mortgage rates going up?

There are several reasons for the increase in mortgage rates this week.

The Federal Reserve

First, the Federal Reserve has indicated that it will begin to withdraw “soon” from the financial policies of the pandemic era. This probably means before the end of the year.

Since the start of the Covid pandemic, the Fed has kept mortgage rates artificially low by pumping billions of dollars into the mortgage market every month.

Rates were still going to rise when the Fed stopped this program.

The Fed now has a clearer roadmap to gradually reduce its mortgage stimulus. And investors (who ultimately determine mortgage rates) are already taking these changes into account. So rates started to rise even though the Fed hasn’t officially made a change.

The debt ceiling debate

Second, there is an increasingly frightening debate going on in Congress about the debt ceiling.

“Much of the increase [in mortgage rates] is due to fears that the United States will effectively run out of liquidity by October 18 unless the debt ceiling is lifted, which was reiterated yesterday by Treasury Secretary Yellen and President of Fed Powell, ”mortgage commentator Rob Chrisman explained in his September 30 commentary.

If Congress cannot agree to raise this ceiling, the United States could default on its debt, which has never been done before.

This would likely lead to at least a mild recession as well as higher interest rates on mortgages and other forms of borrowing.

Find your lowest rate before it goes up. Start here (September 30, 2021)

Will the rates continue to rise?

The peaks in rates prior to this year were followed by dramatic drops. But this new increase could be the start of a longer uptrend.

Ultimately, interest rates rise because the economy improves.

Although Covid is not gone – far from it – we are all finding a ‘new normal’. And it doesn’t look like we’ll be going the other way again any time soon.

As Chrisman said, “Despite the challenges presented by the recent increase in COVID cases, it does not appear that COVID fears will create the headwinds that are crushing the economy they were at the start of the pandemic.”

That said, we could see a jagged path up – with a few spikes and some drops – rather than a steady walk.

If Congress finds a solution to the debt ceiling problem, as we all hope, we might see a temporary respite from these rate hikes.

But overall, rates are likely to continue to rise as the economy strengthens. Borrowers should therefore not expect sustained declines in the near future.

A potential bright spot for home buyers

Rising rates are generally not good news for homeowners. But there might be a silver lining for homebuyers if rates continue to rise.

Freddie Mac Chief Economist Sam Khater explained:

“We expect mortgage rates to continue to rise slightly, which will likely impact home prices, causing them to slow slightly after rising over the past year.”

Even a modest drop in home prices could be good news for buyers fighting an uphill battle in today’s scorching market.

But keep in mind that your rate also has an impact on your home buying budget. So if you are already maximizing the amount you can borrow, even a slight increase in rates could potentially cost you the exit of the home you want.

Don’t miss the low interest rate window

Movements in interest rates can be almost impossible to predict, especially in today’s bizarre and “unprecedented” economy.

However, at the moment, it seems much more likely that rates will continue to rise until the end of the year, rather than fall back to 2 and stay there.

If you’ve been waiting for refinancing or setting your home buying budget on today’s low rates, now is a good time to take mortgage foreclosure seriously.

Check your new rate (Sep 30, 2021)

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