Understanding Rising Mortgage Rates
Understanding Rising Mortgage Rates
Mortgage rates have been historically low for a long time now, which is great for home buyers. Mortgage rates inform how much you will pay for your dream home. While you are not able to quickly pick and choose mortgage rates, mortgage rates are useful. Knowing what mortgage rates are can help you make the best decision for your budget. Mortgage rates are never the same for too long. When buying a home, it is important to think about current mortgage rates. Freddie Mac released results from their Primary Mortgage Market Survey which talks about how mortgage rates have changed. Recently, the rate was announced to be 3.01%. This was a significant change as it is the first time in three months that the rate went above 3%. Here is what home buyers need to know about these rate changes.
Why Have Mortgage Rates Increased?
Mortgage rates are constantly changing from month-to-month because of several factors. Sam Khater, Chief Economist at Freddie Mac, gave some context to today’s rates. He mentions in a press release that mortgage rates have risen across “all types of loans.” This marks the 10 year US Treasury yield being its highest since June. Khater talks about this treasury yield because there is a known correlation between the mortgage rate and the treasury rate. The 30-year mortgage rate has worked in unison with the 10-year treasury rate. When one goes up, the other does too. When the treasury rate had a slight jump, the mortgage rate did as well.
Khater also commented on other factors that contributed to the rate increase. He mentioned that the Federal Reserve communicating that it will taper its support of markets also contributed to the rising rates. The broadening of inflation and new energy supply shortages contribute to labor and material shortages. All of this could affect the market to raise or lower the rate. Khater expects that mortgage rates will continue to rise slightly. This will cause the cost of financing a home to increase for home buyers over the short term.
What Impacts The Yield Rate
Both the yield rate and mortgage rate are impacted by several factors. Yield rate affects the mortgage rate, so it is important to understand what affects the yield rate. Inflation is one of the major factors. The treasury yield acts as a benchmark for other rates across the world. If the Federal Reserve lowers its interest rate, it creates a demand for treasuries. This could cause the yield rate to increase.
Another factor that impacts the yield rate is inflation. When inflation starts, the treasury yield moves higher because fixed-income products become less desirable. Investors will have to try for greater yield because purchasing power will be lowered in the future.
The third factor is economic growth. If economic growth is high, it leads to more demand and competition. To compensate, treasury yields have to rise to balance the supply and demand from the economy’s rapid growth. In the past months, we’ve had concerns about the rise in inflation and economic growth in the pandemic. This has led to a treasury yield spike that made mortgage rates increase as well.
Why It Matters
With mortgage rates affecting future home prices, it’s important that buyers and sellers understand current mortgage rates. As Khater mentions, rising mortgage rates could mean that you have to spend more on your dream home. This is expected as home prices are expected to increase as we close out this year and go into the next.
While it may seem daunting to find out that home prices can go up, there is nothing to worry about. Nadia Evangelou, who is a Senior Economist, talks about the fear of rising home prices. She tells us that consumers shouldn’t panic. Relative to mortgage rates from the past, rates are still historically low. The National Association of Realtors has said that mortgage rates will reach 3.5% by 2022. We should be glad that the mortgage rates of 7 to 10% in the 90s are no more.
Final Thoughts
While today’s market is great for sellers, we never know what tomorrow brings. Mortgage rates are constantly changing because our economy is affected by so many factors. If you are thinking about selling or buying a home, you should be knowledgeable about all aspects of the process. This is especially true for mortgage rates. Mortgage rates determine how much money you will be spending on your home. If you want to learn more about the trends of mortgage rates in the past or details about current rates, contact us! The team at Streamline Realty knows the real estate market inside and out. We can walk you through the home buying process step-by-step. We will break down the numbers and explain what current mortgage rates mean for you. Together we will let you know how to get the most profit possible out of selling your home or buying your dream home.
