Mortgage Rates Reached a 22-Month High of 3.75% Last Week — Faster Than Experts Predicted. Here’s What to Expect Next

A photo to accompany a story about the latest mortgage rates Justin Sullivan/Getty Images
A sign is posted in front of a home for sale on September 28, 2021 in San Anselmo, California. Like most of America, California is experiencing a surge in home prices.
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The average 30-year fixed mortgage rate jumped up again last week, to 3.75% — the highest it’s been since March 2020.

Last week’s increase of 12 basis points is the fourth consecutive week of increasing rates, and now 48 basis points — 3.27% to 3.75% — over a four-week span. 

Rising inflation has been cited by experts and the Fed as a major factor behind rising rates. The December 2021 consumer price index released last week by the Bureau of Labor and Statistics (BLS) shows 7% inflation in the last 12 months, which is the largest inflation surge in 40 years. Higher-than-expected inflation could cause the Fed to increase rates faster than planned, pushing rates upward, Redfin chief economist Daryl Fairweather told us recently. 

While some experts have said new COVID-19 surges could stall rising rates, that hasn’t been the case so far this year. New variants and potential surges they might cause could still pose new threats to economic progress, putting downward pressure on mortgage interest rates, Zillow economist Nicole Bachaud recently told us

However, there is reason to believe that rates could continue rising as they have lately even with new variants and surges. Since COVID-19 first hit the U.S., subsequent surges in cases haven’t had as much of a negative impact on the economy as the initial wave, HousingWire’s lead analysts Logan Mohtashami, recently told us.  

Recent statements by Federal Reserve Chairman Jerome Powell reflect what we have seen the last four weeks: With the economy improving, the Fed expects to raise rates three times in 2022. 

Mortgage rates may have reached levels not seen in nearly two years, but they are still historically low and lower than they were before the pandemic started. For homebuyers and homeowners, making a good decision about buying or refinancing has much more to do with personal circumstances than current mortgage rates.

Here’s what this means for borrowers.  

ABOUT THE LATEST MORTGAGE RATES

Last week’s average mortgage rate is based on mortgage rate information provided by national lenders to Bankrate.com, which like NextAdvisor is owned by Red Ventures.

Here’s What to Expect With Mortgage Rates and the Housing Market This January 2022

Many experts predicted mortgage rates would reach this level in 2022. However, most experts did not predict it to happen this quickly. 

Realtor.com chief economist Daniele Hale and Fairweather both recently told us they predicted mortgage rates would reach 3.6% by the end of 2022, not in the first month of the year. 

Mortgage Bankers Association’s economist Joel Kan forecasted the average 30-year fixed mortgage rate to hit 4% by the end of 2022, citing economic growth as one of the biggest reasons behind his prediction. If rates continue to increase like they have been lately, his prediction will come true much earlier than anticipated, as well.

New COVID variants and surges in cases haven’t had as much of a negative impact on the economy as the initial wave, so even while the pandemic continues, rates will likely continue increasing, said Mohtashami.

On a possible plus side for homebuyers, rising rates could cool down the housing market somewhat. “If you have to wait until later in the year when mortgage rates are higher, I think you’ll have the benefit of a lot more selection,” Fairweather says. At the end of the day, buying a home should be a long-term decision. You can’t really lose as long as you’re staying in the house for a long time, she says: “In the long run home values will go up.”

The Highs and Lows of the Average 30-Year Fixed Mortgage Rate

Here’s a look at how current mortgage rates compare to where they’ve been over the last few years, along with inflation rate and national home price for each year. 

2019202020212022 (through Jan. 20)
Highest 30-year Fixed Mortgage Rate4.05%3.88%3.34%3.75%
Lowest 30-year Fixed Mortgage Rate3.74%2.95%2.93%3.4%
Inflation Rate2.3%1.4%7%N/A
National Average Home Price$271,900$296,700$353,900*N/A

*As of November 2021, NAR data

When looking at the average 30-year fixed mortgage rate over a longer period of time, there is a more important trend to point out: Today’s rates aren’t as high as they might seem in the context of the last two years. Last week’s new average rate of 3.75% seems high compared to the 2.93% we saw in early January 2021. But 3.75% is still just a hair over the lowest average rate recorded in 2019.

What Other Mortgage Industry Data Is Saying 

Last week’s rate increase was also evident in the latest Freddie Mac survey, a long-running mortgage rate average watched by industry experts. The Freddie Mac survey had the average 30-year mortgage rate average at 3.56% last week, an increase of 11 basis points over its previous week average. This is the largest weekly Freddie Mac increase since March 2020.

Freddie Mac is a government-sponsored organization that purchases home loans on the secondary market. Its survey methodology and the time period in which it collects data each week differs from other surveys, such as the Bankrate survey referenced throughout this article. While different mortgage rate averages will show slight variation, they do show similar overall mortgage rate trends over time.

Here’s What This Means for Existing Homeowners:

Rising mortgage rates might make it seem like refinancing is no longer a good option, but that’s not necessarily true. Mortgage rates at current levels are still considered favorable compared to the 4%+ rage they were prepandemic. A good rule of thumb is if you can score a new mortgage rate that is close to 0.75% lower than your current rate, it could be a good move to refinance. 

Homeowners who are on the fence about refinancing may want to consider it. Mortgage rates are expected to continue their upward trajectory in the long term, so it may be worth crunching the numbers with a few lenders to see if you can benefit. 

A rate and term refinance could go a long way in reducing not only your monthly payments but also the amount of interest paid over the life of the loan. With home values across the country having increased over the past year, you could also take advantage of the increased equity in your home by doing a cash-out refinance, home equity loan, or HELOC. These can be a useful tool to help pay off high-interest debt, pay for college expenses, or fund a home improvement project

Here’s What This Means for New Homebuyers

Experts believe the housing market is starting to cool down. But the demand among buyers is expected to stay high, Kan recently told us. “We have a lot of younger people in the population entering, or who are already at, the prime homeownership age,” Kan says. But with housing prices having increased over the past year, you might need a larger down payment of at least 10%, but ideally 20%, to stay within an affordable range

Higher mortgage interest rates will impact your buying power, Kerry Melcher, head of real estate at Opendoor, recently told us. “Understanding your financing is really important,” she says, meaning it’s essential to understand the upper limits of your homebuying budget. You may be able to qualify for a loan amount that is more than you’re comfortable with, and you don’t want to get caught up in a bidding war and end up with a higher-than-expected monthly payment. 

This is why housing experts recommend planning ahead by:

  1. Knowing how much house you can afford
  2. Don’t rush into a home purchase
  3. Sticking to a homebuying budget
  4. Finding an experienced real estate agent you’re comfortable with 
  5. Plug and play your estimated figures into NextAdvisor’s mortgage calculator to see what a comfortable monthly mortgage payment will look like.