Last week, mortgage rates experienced a sharp spike upward. The average interest rate for a 30-year fixed mortgage loan jumped over 3% early last week and sits at 3.10% as of September 23.

Reasons for this Rate Hike

There are multiple reasons for this latest rate hike. First, it is a reaction to the latest comments from the Federal Reserve. Fed Chairman Jerome Powell indicated they intend to raise the federal funds rate and plan to slow down purchases of mortgage-backed bonds sooner than most economic experts expected.

The federal funds rate doesn’t necessarily impact mortgage rates, but it is worth noting. The 10-year Treasury yield, which directly affects mortgage rates, also hit its highest level since early July.

Covid Cases Are Down, Mortgage Rates Are Up

One other interesting note is that Covid-19 infection rates have been going down as vaccinations are increasing. The pandemic has had a significant effect on mortgage rates these past two years. Seeing interest rates go up as Covid cases go down is no surprise to anyone who’s followed the trends.

“If we consider why mortgage rates ended up crushing previous all-time lows in 2020, the answer was clearly Covid,” said Matthew Graham, COO at Mortgage News Daily. “While the pace and volatility will vary due to other factors, we have always been destined to move back toward higher rates as the pandemic subsides, and this week’s case count suggests it’s subsiding again.”

What he’s saying is that mortgage rates will continue to be a bit of a roller coaster until the pandemic is fully behind us. If cases go back up, the rates will likely come back down again and vice versa. From a long-term perspective, this echoes other mortgage experts who have expected rates to continue increasing as the economy recovers from the pandemic. If the worst of Covid-19 is truly behind us, then rates should continue to climb. That’s a big “if” with this pandemic!

Real Estate Trends

Of course, the mortgage rates have a major impact on the real estate market. It has been a very strong seller’s market during the pandemic. Home prices are up while buyer demand has been high with these low rates. Increasing housing inventory combined with reduced buying power (with higher mortgage rates) will likely level out home prices and the real estate market, in general.

One example of this trend is that the amount of first-time buyers dropped in August. Their share of the home buying market dipped to 29%, which is the lowest rate since early 2019 when mortgage rates were over 5%. In typical markets, first-time buyers make up approximately 40% of home sales.

Is Now a Good Time to Buy a Home?

This is still a great time to sell and an opportune time to buy a home. A 30-year fixed mortgage loan at an average rate in the low-three-percent range gives you a lot more buying power. We may see rates dip back down or we may see a steady rise. Many signs point to the latter, so it could be the best time to make your move if it’s a smart financial decision for you at the moment.

If you are thinking about buying a home in the near future, contact Transparent Mortgage today at (619) 431-0754 to get pre-approved for your loan and locked in at a favorable rate.

Keith Lindsey
Keith Lindsey joined Transparent Mortgage in December of 2016 as a blogger and content manager. Keith works with Beau and the team to help them tell their stories and share what Transparent Mortgage is all about. He lives in Rancho Mirage, CA and is a golf enthusiast.
Keith Lindsey