The average interest rate on the popular 30-year fixed-rate mortgage rose sharply on Thursday, reaching 3.25%, according to Mortgage News Daily. That is the highest rate since mid-April.
The move was in response to comments made by Federal Reserve Chairman Jerome Powell on Wednesday following this week’s central bank meeting. Fed officials said interest rate hikes could come in 2023, though they didn’t mention when they would be scaling back their massive bond-buying program.
“You can think of this meeting we had as the ‘talking about talking about’ meeting,” Powell said, recalling a statement he made in 2020 that the bank was “not thinking about it, to raise interest rates ”.
In anticipation of the Fed meeting, mortgage rates even rose on Tuesday.
Mortgage rates don’t follow the Federal Funds Rate, which was unchanged on Wednesday, but generally follow the 10-year US Treasury bond yield, which was moving up.
Mortgage rates are also heavily influenced by the amount of mortgage-backed bonds the Fed buys. That surprised some investors and caused bond yields and mortgage rates to rise higher than expected.
“Markets were a little surprised at the Fed’s prospect of a rate hike. Granted, the Fed Funds Rate doesn’t control mortgage rates, but the outlook suggests how quickly the Fed should be scaling back its bond purchase programs (aka “tapering”). These programs definitely help keep interest rates down, “said Matthew Graham, chief operating officer of Mortgage News Daily.
The earlier the Fed starts tapering, the sooner mortgage rates will rise, as was the case with the last so-called taper tantrum in June 2013.
Mortgage rates are now almost a quarter percentage point higher than last Friday and about a quarter percentage point higher than a year ago.
That doesn’t sound like much, but it does matter for those who want to save their monthly payments by refinancing. As a rule of thumb, if you can’t save at least half a percentage point on your tariff, e.g. B. from 3.5% to 3.0%, then the cost is not worth it.
Interest rates fell dramatically last fall, and as of February this year the average 30-year lock-in rate was 2.75%. This led to a refinancing boom. Home loan refinance requests are now 22% lower than a year ago, according to the Mortgage Bankers Association. There are now significantly fewer borrowers who can benefit from refinancing.
For home buyers, with house prices skyrocketing today, any hike in interest rates will not only detract from the monthly payment but also make it harder to qualify for the loan.
“For home buyers, this means that it is a good idea to re-examine your home shopping budget. Do the numbers and know what it means to your search price if prices go up a quarter point, but hold on.” these concerns in context. ” said Danielle Hale, chief economist at realtor.com.
“Even if mortgage rates rise, they won’t be the main challenge for today’s buyers, who still struggle with relatively few, fast-selling properties and record asking prices,” she said.