Mortgage Rates Dropped Back Below 4% Last Week Amid War In Ukraine. But Experts Say the Dip Will Likely Be ‘Short-Lived’

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Mortgage rates plunged back below 4% last week in their biggest one-week drop in nearly two years with Russia’s invasion of Ukraine injecting new uncertainty into the world economy.

The average 30-year fixed rate dropped to 3.97%, down from 4.08% last week. 

We’re barely more than two months into 2022 and it’s already been a roller coaster ride for mortgage rates. They topped 4% for two weeks, a level not seen since 2019, after rising from around 3.3% at the start of the year. Rates are up from the past year or so, but are still near historical lows.

“We’re in a really unique moment where there are so many things happening so quickly that impact rates,” says Lindsay Barton Barrett, a New York real estate broker with the firm Douglas Elliman.

The dip in mortgage rates “could be short-lived,” Barrett says. “People who were motivated to buy something have become much more motivated because they want to get it done before rates go up any more.”

While rates are generally going up, that doesn’t mean you’re stuck with whatever the average is. Experts recommend shopping around with different lenders to find the best rate, since unique factors play a big part in determining the actual mortgage rate you end up with. 

About the Latest Mortgage Rates

Except where otherwise noted, mortgage rate data in this story is based on mortgage rate information provided by national lenders to Bankrate.com, which like NextAdvisor is owned by Red Ventures.

Economic Trends Affecting Mortgage Rates 

The war in Ukraine is the latest variable affecting rates. The human toll of the war has been heavy. The United Nations reported more than a million Ukrainians have become refugees in the week since the war started, with many more fleeing their homes for shelter elsewhere in the country.

Experts say the war is likely to cause more volatility in financial markets, potentially sending investors to the relative safety of bonds such as the 10-year U.S. treasury note, which mortgage rates tend to track. 

Markets also got a little more clarity last week on what the Federal Reserve might do at its next meeting in two weeks. Chairman Jerome Powell told Congress on Wednesday that he will likely support increasing the Fed’s benchmark short-term interest rate by a quarter of a percentage point from its current near-zero level. That’s the first step in what will likely be several increases this year in an effort to rein in the highest inflation in 40 years

“The bottom line is that we will proceed but we will proceed carefully as we learn more about the implications of the Ukraine war for the economy,” Powell said. “We use our tools to support financial stability and macroeconomic stability. We’re going to avoid adding uncertainty to what is already an extraordinarily challenging and uncertain moment.”

High inflation, which experts have told us contributed significantly to the run-up in mortgage rates, is “nothing like anything we’ve experienced in decades,” Powell said. 

Expert Predictions: What Will Happen to Mortgage Rates In March?  

The Fed meeting later this month and the Russian war in Ukraine are likely to play a big role in shaping where mortgage rates go in March, experts told us. Despite the volatility brought by those two factors — and others, such as inflation and the broader economic recovery — some expected rates to keep trending upward. “The rates will continue to climb in 2022, and I don’t think March will be any exception,” Mitria Wilson-Spotser, director of housing policy for the Consumer Federation of America, told us.

It’s a particularly volatile time in the financial markets, meaning rates can see a lot of changes like we saw last week, Linda McCoy, board president of the National Association of Mortgage Brokers, told us. “Too many variables can change the rates,” she said. “Too many things can happen.”

What Other Mortgage Industry Data Show 

Also showing a drop last week was the survey from Freddie Mac, in which the 30-year fixed rate average dropped 13 basis points to 3.76%. Freddie Mac attributed the drop to the war in Ukraine and ensuing uncertainty in financial markets, noting that while rates could stay low in the short term, they are expected to rise in the coming months.

Freddie Mac is a government-sponsored entity that buys mortgages on the secondary market, and while its survey’s methodology and the time in which it collects data differ from others, such as the Bankrate survey referenced in this article. While the mortgage rate averages vary, they show similar trends over time.

Historical Lookback of the Average 30-Year Fixed Mortgage Rate

Here’s a visual look at how current mortgage rates compare to the last 22 years.

Freddie Mac mortgage rates
Freddie Mac

The 3.97% reported last week is higher than rates were in 2020 or 2021, but it’s on par with rates from 2019, which was still a good year for mortgage rates. 

Rates around 4% are still quite low compared to historical figures, and not just the double-digit rates that were common in the 1980s. Annual averages over the past two decades from the Freddie Mac survey, which follows similar trends to the Bankrate survey used here, show that rates remain quite favorable compared to what they were in fairly recent memory.

Pro Tip

While mortgage rates averages are generally on their way up, despite a drop last week, the rate you get from a lender can vary quite a bit. Be sure to shop around to get the best deal: It adds up in the long run.

What the Latest Mortgage Rates Mean for Homebuyers   

A drop in mortgage rates might come as a relief to homebuyers who have been worried with the big jumps the past several weeks, but the dip might not last long. It’s important to consider that while rates are up compared to what they were in 2020 and 2021 — years that were, in many more ways than one, unprecedented — they aren’t far off from where they were before the pandemic and are lower than they were a decade or so ago. 

Mortgage rates are important and big increases can cut into home affordability, which is already strained by the high cost of homes right now. A report on monthly housing market trends by Realtor.com found the national median listing price for homes was $392,000 in February, a 12.9% increase from last February and a 26.6% jump from the year before. “When interest rates go up, that means you can afford less home,” Wilson-Spotser told us. “You have to rethink what you can afford, what is a comfortable monthly payment for you.” 

NextAdvisor’s mortgage calculator can help you find out what you can afford as the housing market changes.

Note that whatever the average is, the rates you get from lenders will vary based on individual circumstances. Research from the Consumer Financial Protection Bureau (CFPB) found rates offered by different lenders can vary by as much as half of a percentage point for similarly qualified borrowers. For a loan in the hundreds of thousands of dollars over a 30-year term, that’s a savings of thousands of dollars. That’s why it’s important to shop around at different lenders to get the best rate.

Also consider that buying a home is far more than just a financial decision. It’s about making a lifestyle choice, and while the market for mortgages and homes shapes that decision, don’t base it solely on a few basis points on a mortgage rate. Barrett says it’s a personal decision that homebuyers face. “It’s not necessarily a rational decision-making process that people are engaged in, and they make decisions about homebuying a lot differently than they might make about a home refinance or other investments,” she says.

What the Latest Mortgage Rates Mean for Existing Homeowners

The increase in rates since the start of the year has changed the market for refinancing as doing so for the purpose of reducing your rate and saving money has become less appealing for many homeowners. That still makes sense for millions of homeowners, according to recent data from the mortgage technology and data provider Black Knight, which estimated there are about 3.8 million “high-quality refinance candidates,” down from nearly 20 million when rates were much lower. 

Refinancing isn’t always about saving on your mortgage rate, however. If you’re considering a cash-out refinance, whether it’s to tap into the equity in your home for a big expense or to consolidate higher-interest debt, a rate around 4% might not be too bad. A cash-out refinance might also allow you to tap into the added equity in your home after prices have shot up in the past few years. Rick Sharga, executive vice president of marketing at RealtyTrac, a foreclosure information firm, told us he recommends homeowners leave a cushion of at least around 20% of the equity in their homes to guard against drops in the market or other future financial uncertainty. “It also makes sense for people not to do a refi just for the sake of getting some cash out unless they’re using it for some meaningful purpose,” he says.

Whether you are looking to refinance or purchase, you can compare lender offers here using this Home Loan Comparison Calculator. You can enter in the loan amount, rate, fees, and term for each offer and see a true side-by-side comparison. 

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