The average 30-year fixed rate mortgage increased to 3.22% during the week ending Jan. 6, up from 3.11% the week prior, according to the latest Freddie Mac PMMS Mortgage Survey. A year ago, the 30-year fixed rate mortgage averaged 2.65%.
The 15-year fixed rate mortgage averaged 2.43% last week, up from 2.33% the week prior. A year ago at this time, it averaged 2.16%. Mortgage rates tend to move in concert with the 10-year Treasury yield, which reached 1.75% on Wednesday, up from 1.51% a week before.
This is the second week of mortgage rate increases, after the 30-year fixed rate fell to 3.05% on Dec. 23 amid fears of the Omicron variant.
The report is focused on conventional, conforming, fully amortizing home purchase loans for borrowers who put 20% down and have excellent credit.
“Mortgage rate increased during the first week of 2022 to the highest level since May 2020 and are more than half a percent higher than January 2021,” Sam Khater, Freddie Mac’s chief economist said in a statement. “With higher inflation, promising economic growth and a tight labor market, we expect rates will continue to rise. The impact of higher rates on purchase demand remains modest so far give the current first-time homebuyer growth.”
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Economists expect rates to increase in 2022 but will still be close to record-low levels. The Mortgage Bankers Association (MBA) forecasts that 30-year mortgage rates will reach 4% by the end of 2022.
Drivers of the rising rates include a more hawkish Federal Reserve, a strongly recovering economy, and large federal budget deficits, according to Mike Fratantoni, MBA’s senior vice president of research and industry technology.
Rising mortgage rates have already begun to sap demand. According to MBA, mortgage applications fell 2.7% during the two weeks ending Dec. 31. The purchase index fell 32% from two weeks prior, while the refinance index increased 2% during the same time period.