Why have mortgage rates increased in times of COVID-19?

mortgage rates
The pandemic could continue to weigh on consumer spending, disrupting travel plans and spooking investors.

May 11, 2022 –Hispanic Solutions Group

As is known, the World Health Organization warned last year that the omicron variant presents a “very high” global risk and is likely to spread internationally. While it’s too early to know the effect on mortgage rates, this latest twist means the pandemic could continue to weigh on consumer spending, disrupt travel plans and spook investors. The 2020 coronavirus scare sent mortgage rates to record lows, and a new round of uncertainty could cloud today’s rate outlook, experts say.

In January 2020, the average rate on a 30-year mortgage fell below 3 percent, according to a national survey of lenders. But by New Year’s Eve, those rates may have risen by 40 basis points, if the omicron variant proves mild, they said.

What type of rate can you expect on your next mortgage purchase or refinance loan?

According to experts their rate predictions for this year and beyond.

Thinking of a year without worries (and lower rates).

Warning signs about rising inflation have not abated in recent weeks, leaving many industry insiders pessimistic about the mortgage rate environment. Even if recent jobs reports look promising, broader economic data looks upbeat. and the recently approved infrastructure bill seems to be a step. in the right direction, reported

“With inflation elevated and the Federal Reserve making good on its promise to start winding down bond purchases, mortgage rates will continue to rise by the end of the year,” says financial analyst Greg McBride,

Nadia Evangelou, Senior Economist and Director of Forecasting at the Association.

National Realtors agrees with McBride’s opinion.

Len Kiefer, deputy chief economist at mortgage giant Freddie Mac, says his organization also expects high rates this month, but perhaps not as high as others anticipate.

Kiefer says “Mortgage rates generally track US Treasury yields and we expect them to continue to rise, albeit at a modest pace. Treasury bond yields are higher due to a variety of factors, including a recovering economy, higher near-term inflation and an anticipated tightening of monetary policy.

Rate projections for 2022.

Eager to find out if December’s higher rates are just a fluke?Prepare for bad news: Several factors point to further rate jumps in the first quarter of 2022, experts said “Mortgage rates will continue to rise over the next year due to high inflation. When inflation rises, lenders demand higher interest rates as compensation for decreased purchasing power,” says Evangelou.

Consider, too, that the Fed’s own projections indicate a likely interest rate hike or two in 2022. But if inflation continues to grow at the current pace, this rate hike may come sooner than expected next year. .

“And when the Fed raises interest rates, the banks do too. When that happens, mortgage rates go up for borrowers,” Evangelou added. McBride says the rate hike will be limited, however, by occasional bouts of market volatility and concerns about slower economic growth in 2022.

“The good news is that higher interest rates will reflect a stronger economy that continues to recover and return to normal”Kiefer says.

“Of course, negative surprises about the pandemic could lead to lower interest rates, but continued progress on COVID-19 would likely lead to higher rates.

Buy a home or refinance now if you’re ready

Buying a home is an important commitment that no one should rush into. But in today’s market, homebuyers may need to act decisively after carefully considering their financial situation, with mortgage interest rates and home prices expected to rise over the next year, it is Buying today is likely to be more affordable than waiting, suggests Kiefer.

“Prospective buyers will want to first consider their current credit profile and overall balance of the home,” as well as how long they plan to stay in their new home, what their current employment status is, how much other debt they have to pay, and how well they’ve been able to manage it. your payments on existing debt obligations.

If refinancing is on your mind, now is the time to act, assuming your financial house is in order, advises McBride.

“Even with recent rate increases, refinance rates are still lower than seen before the summer of last year,” he says. “Dont miss the chance. Particularly with the cost of so many other things on the rise, the ability to cut your mortgage payments significantly can create valuable breathing room in your home budget. home.

By historical standards, mortgage interest rates remain very low, Kiefer explains. Rates would have to rise by nearly 2 full percentage points to match the highest they’ve been in the last five years.

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