Bad news for home buyers: Mortgage rates soar to highest level since March 2020

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Interest rates are rising on the heels of data showing a concerning outlook for inflation – and the price homebuyers will pay.

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30-year fixed-rate mortgages averaged 3.45% for the week ended January 13, up nearly a quarter percentage point from the previous week, Freddie Ma’s.C
FMCC,
-0.49%
reported on ThursdayThis is the highest average rate for a 30-year loan since March 2020, when the coronavirus pandemic first began sending shockwaves through financial markets amid the first wave of lockdowns.

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By comparison, a year ago, 30-year fixed-rate mortgages averaged 2.23%, near record-low levels.

The 15-year fixed-rate mortgage, meanwhile, rose 19 basis points over the past week to an average of 2.3%. 5-year Treasury-indexed adjustable-rate mortgages averaged 2.57%, up 16 basis points from the previous week.

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,‘The Federal Reserve has accelerated its timetable for ending quantitative easing and is likely to raise interest rates sooner and more aggressively than ever before.’,


–Sam Bullard, managing director of Wells Fargo’s corporate and investment banking arm

Mortgage rates skyrocketed in response to the latest data on inflation. The Consumer Price Index released on Wednesday showed inflation was at a nearly 40-year high, with prices of goods and services rising 7% over the past year.

Such a high rate of inflation is a major concern for the Federal Reserve, which has already indicated it will raise interest rates and reduce its bond-buying activity in an effort to correct the economy. But the central bank’s initial plan may now be out the window.

Sam Bullard, managing director and senior economist at Corporate and Investment Banking, said: “With inflation remaining more stable, the Federal Reserve has accelerated its timetable to ease quantitative easing and make interest rates more aggressive sooner.” can start increasing.” Branch of Wells Fargo WFC,
+0.65%,
In a research note.

Bullard estimated the Fed could now raise interest rates by four times, instead of three initially projected. And rather than simply halting its bond-buying behavior, the central bank may actually begin to shrink its balance sheet by not replacing U.S. Treasury and mortgage-backed securities at maturity, he said.

The Fed’s rate hike will not have a direct effect on mortgage rates, as they follow the direction of yields on longer-term bonds such as the 10-year Treasury TMUBMUSD10Y,
1.718%,
Instead, higher rates will materialize as investors begin to make assumptions about the Fed’s plans to curb inflation.

Economists suggested that higher rates are unlikely to put a complete brake on their plans to buy property for home buyers. But this will impact the margins of buyers who may struggle to bear the double whammy of higher interest rates and rising home prices.

Sam Khatter, chief economist at Freddie Mac’s, said: “The hike in mortgage rates so far this year has not yet affected buying demand, but given the fast pace of home price growth, it could reduce demand in the near future.” will give.” report good.

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