According to Freddie Mac, mortgage rates crossed 4 percent in the week ending March 17. The earlier rate, a week before, was 3.85. This is the first time that the 30-year fixed-rate mortgage went above 4 percent, since May 2019.
On Wednesday, the Federal Reserve announced that there would be a raise in interest rates. Rates have not been increased since 2018. The increase also puts to an end the pandemic-era easy-money policy adopted by the central bank. The federal funds rate is now at 0.25-0.5 %.
Although mortgage rates are not directly linked to federal fund rates, they track the yields that are obtained on 10-year treasury bonds. These bonds are influenced by several factors such as the reactions of investors to the moves made by the central bank as well as inflation.
Inflation stands at 7.9 percent year-over-year and is the highest in the past 40 years. There is no indication that inflation will fall as there is volatility due to the Russia-Ukraine conflict.
Freddie Mac’s chief economist said that the action by the Fed of raising short-term rates and mentioning further increases indicates that mortgage rates are likely to increase through the year. The rates are also being impacted due to inflation as well as the crisis in Ukraine.
Mortgage rates define the ability to buy homes. Lower rates help to offset the increasing rise in home prices as buyers make monthly payments.
Freddie Mac, a government sponsored finance company, said that there is still strong interest among consumers to purchase homes. The demand for buying homes rose during the pandemic and resulted in a 19 percent increase in home prices last year, as many locations had limited supply of homes that could be purchased.
Although mortgage rates have an effect on home buying, other factors such as supply and demand have a higher impact on home buying. Home buying rates are not going to fall unless there is a huge number of homes being built and new construction is not exceptional in the current situation.
The Thursday analysis by Freddie Mac said that although the home purchase demand had “moderated” it was still a competitive marking as the existing inventory supply was low. This means that high house pricing would continue during the home buying season this spring.
