In the coming months most lenders and brokers are going to learn you can’t fight The Fed. Last month’s announcement from The Federal Reserve suggested multiple rate hikes will be coming in 2022 to fight rising inflation.
“Elevated inflation and the Fed’s taper acceleration will move up mortgage rates in January. I expect the 30-year fixed mortgage rate to average 3.2 percent and the 15-year fixed mortgage rate to average 2.5 percent this month,” said Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors (NAR).
Inflation rose to its highest level since 1982 and history demonstrates that rising inflation causes the 10-year Treasury yield to drift up.
“Higher inflation erodes the return that the investor of a bond or loan is holding over time, and bonds are not any more attractive to investors. This, in turn, makes bond values go down and yields rise,” Evangelou said. “Consequently, mortgage rates move upward, as they are tied to the 10-year Treasury yield.”
The moral of the story is to urge consumers to lock in a low rate now on purchase and refinance loans before rates eventually go up. Although the refinance games has dropped off significantly in the second half of this year, there is still opportunity to lock in rates right now.
December 2021 mortgage rate-lock volume was down 40% year-over-year and 17% month-over-month across all channels, while funded volume decreased 25% year-over-year and 6% month-over-month, according to Curinos.
In the retail channel, lock volume decreased 37% year-over-year and 17% month-over-month, while funded volume was down 25% year-over-year and 6% month-over-month. The average 30-year conforming retail funded rate in December was 3.32%, 6 basis points higher than November and 37 basis points higher than the same month last year.
Purchase rates were 4 basis points higher month-over-month and 42 basis points higher year-over-year, while refinance rates were 7 basis points higher month-over-month and 34 basis points higher year-over-year. Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures.
“Determined buyers were able to land housing before mortgage rates rise further in the coming months,” said Lawrence Yun, NAR’s chief economist. “Locking in a constant and firm mortgage payment motivated many consumers who grew weary of escalating rents over the last year.
“Mortgage rates are projected to jump in 2022, however, I don’t expect the imminent increase to be overly dramatic.”
Yun forecasts the 30-year fixed mortgage rate to average at 3.7% by year-end of 2022.
