Mortgage Rates Increased to 3.27% Last Week. Here’s What Experts Forecast Amid Rising Inflation and COVID Cases

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A housing development is pictured in Atlanta on Dec. 3, 2021. Atlanta is experiencing surging inflation and rising house prices, which experts cite as a major factor in rising interest rates in 2022.
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Mortgage rates increased slightly by 0.01% last week to 3.27%, a movement consistent with what housing experts have been forecasting for months: Mortgage rates will rise in 2022

Rates have been moving up and down slightly amid growing concerns over record-high inflation and record-high COVID-19 cases. Mortgage rates have been at levels not seen since April 2021 in recent weeks.

Despite near-term volatility, the long-term outlook continues to support rising rates this year. Mortgage industry experts have long predicted rising rates, and recent statements by Federal Reserve Chairman Jerome Powell offer new support.

Still, new fears over the new Omicron COVID variant could pull rates down. We saw this at the beginning of the pandemic, with shutdowns and economic uncertainty causing widespread unemployment, followed by the Federal Reserve taking action to keep rates low. 

While the economy has shown signs of strength and improvement over the past year, Powell also acknowledged that the impact of Omicron and other COVID-19 variants would remain a variable factor in the economy and the Federal Reserve’s response to it. “The rise in COVID cases in recent weeks, along with the emergence of the Omicron variant, pose risks to the outlook.” 

Here’s a look at where rates have been and what we could see in the future. 

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.

Mortgage Rates and the Housing Market: What to Expect

Experts predicted we would see increasing rates and volatility in December and going into 2022, and that’s largely been the case. Last week’s increase of the average 30-year fixed mortgage rate from 3.26% to 3.27% is just below the highest rate average — 3.28% — in eight months.  

Experts expect the increases to continue. The Federal Reserve said last month there could be as many as three rate hikes in 2022, which translates into higher rates for mortgages and other types of lending. Even before last week’s Fed announcements, consumers expected rates to increase over the next 12 months, according to a recent Fannie Mae housing study. How fast or slow they increase is likely to depend on the health of the economy.

While more increases are expected, housing experts believe rates will increase gradually, rather than skyrocket. Joel Kan, an economist at the Mortgage Bankers Association, said recently his forecast is for the 30-year fixed mortgage rates to hit 4% by the end of 2022. 

The economy also seems better prepared to handle new waves of rising COVID cases than it did during the pandemic’s early days. Subsequent surges in COVID cases haven’t had as much of a negative impact on the economy as the initial wave, Logan Mohtashami, HousingWire data analyst, recently told us

“If you look at the Delta variant, “economic growth continued relatively smoothly,” Danielle Hale, chief economist at Realtor.com, told us recently. New variants will have a smaller impact on actual economic activity, she said. 

While current rates aren’t as low as the sub-3% we saw earlier this year, they are still very low from a historical perspective.  

Mortgage rates are still at attractive refinancing levels. They are significantly lower than the nearly 4% levels they were at prior to the pandemic. According to estimates from Fannie Mae, as many as 38% of those with a mortgage could stand to reduce their rate by at least 0.50%, resulting in a significant amount of savings over the life of the loan. These lower interest rates could also benefit homebuyers as it would mean less interest paid over the long term. 

Mortgage Rates: Compared to a Year Ago 

The average 30-year fixed mortgage rate was around 3% one year ago. That is 0.27 percentage points lower than last week’s average. Two years ago, they were at 3.86% — significantly higher than they are today.  

The big drop in rates this year was largely a result of the economic effects of the COVID-19 pandemic and the Federal Reserve’s reactive policies in 2020. According to the U.S. Bureau of Labor Statistics (BLS), nearly 9 million workers reported losing employment in 2020. In an effort to avoid widespread foreclosures, the Federal Reserve implemented policies intended to drive down interest rates to make housing more affordable. Lower interest rates can help keep homebuying affordable and encourage homeowners to refinance to lower monthly mortgage payments.

What Borrowers Should Know About These Mortgage Rates

Here is what future housing market speculation and forecasted rising rates means for potential borrowers.  

Existing Homeowners

Now may be a good time for a refinance. Homeowners who are on the fence about refinancing may want to consider it. After the most recent Fed announcement, mortgage rates are expected to continue their upward trajectory in the long term. It may be worth crunching the numbers with a few lenders to see if you can benefit. A good rule of thumb is if you can score a new mortgage rate that is 0.75%-1% lower than your current rate, it could be a good move to refinance. 

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. Cash-out refinances are gaining in popularity — increasing from 37% to 49% of total refinances in the first half of this year, according to mortgage data analytics firm Black Knight. A cash-out refi can be a useful tool to help pay off high-interest debt, pay for college expenses, or fund a home improvement project

New Homebuyers

Experts believe the housing market is starting to cool down. But with housing prices having increased over the past year, you might need a larger down payment to stay within affordable range. While a low mortgage rate can help offset down payment expenses, a large home loan can overshadow the potential savings from a low mortgage rate.

Some experts advise delaying a home purchase until the market cools further. Others say not to time the market and buy when the time’s right for your personal situation. With the recent rate volatility in recent weeks, it’s almost impossible to time. “It’s hard to predict what rates will do in the future, much like the stock market,” John Bergquist, managing member of Lift Financial in South Jordan, Utah, told us. “We are currently near historic lows. With this in mind, I would not suggest waiting and trying to time the market.”

Whichever you decide, housing experts recommend planning ahead by:

  1. Don’t rush into a home purchase
  2. Knowing how much house you can afford
  3. Sticking to a home buying budget
  4. Saving for a large enough down payment
  5. Vetting an experienced real estate agent your comfortable with 

Pro Tip

Plug and play your estimated figures into NextAdvisor’s mortgage calculator to see what your monthly payment may look like.