Mortgage Rates Rose to 3.24% on the Heels of Soaring Inflation. Here’s What Experts Predict Will Happen Next

Experts recently predicted December would be a volatile month for rates, and we're already seeing signs of that coming true. Mortgage rates have been following a zig-zag pattern as the average 30-year fixed mortgage rate fell from 3.24% to 3.20% and now back to 3.24% over the last three weeks.

Growing concerns over rising inflation and the Omicron variant of COVID-19 have been pushing and pulling rates up and down. The November consumer price index last week reported the largest inflation surge in 39 years. Interest rates typically rise when we see inflation as high as it has been, we were recently told by Jennifer Kouchis, senior vice president of real estate lending at VyStar Credit Union. Adding to the mix, the Federal Reserve's Chairman Jerome Powell announced this week that the Fed plans to to slow down its bond purchasing program since "the economy no longer needs increasing amounts of policy supports," said Powell.

"With the Fed's recent announcement … there's a strong expectation that rates, including mortgage rates, will rise next year," Robert Heck, vice president of mortgage at online broker Morty, recently told us.

On the other side of the coin, new fears over the new Omicron COVID variant could pull rates down. We saw this at the beginning of the pandemic, with shutdowns and economic uncertainty causing widespread unemployment, followed by the Federal Reserve taking action to keep rates low.

Here's a look at where rates have been, where they are today, and what we could see in the future.

Mortgage Rates: Looking Back

The average 30-year fixed mortgage rate was around 3% one year ago. That is 0.24 percentage points lower than last week's average. Two years ago, they were at 3.9% - significantly higher than they are today.

The big drop in rates is largely a result of the economic effects of the COVID-19 pandemic and the Federal Reserve's reactive policies. According to the U.S. Bureau of Labor Statistics (BLS), nearly 9 million workers reported losing employment in 2020. In an effort to avoid widespread foreclosures, the Federal Reserve implemented policies intended to drive down interest rates to make housing more affordable. Lower interest rates can help keep homebuying affordable and encourage homeowners to refinance to lower monthly mortgage payments.

Mortgage Rates and Housing Market: Current Outlook

It's not surprising to see last week's average 30-year fixed mortgage rate rise by 0.04% to 3.24%.

The rate volatility over the last few weeks is exactly how experts predicted for December and into 2022.

Mortgage rates were at their lowest in early 2021 and have been gradually increasing since then. As our economy recovers from the impact of COVID-19 and employment returns to pre-pandemic levels, the Federal Reserve has less incentive to take actions keeping rates low.

Last week's rate decrease isn't as low as the sub-3% we saw earlier this year, but rates are still considered favorable from a historical perspective.

If you currently own a home, a rate and term refinance could go a long way in reducing not only your monthly payments but also the amount of interest paid over the life of the loan. With home values across the country having increased over the past year, you could also take advantage of the increased equity in your home by doing a cash-out refinance to consolidate debt or finance home improvements.

Cash-out refinances are gaining in popularity - increasing from 37% to 49% of total refinances in the first half of this year, according to mortgage data analytics firm Black Knight. A cash-out refi can be a useful tool to help pay off high-interest deb t, pay for college expenses, or fund a home improvement project.

Experts believe the housing market is starting to cool down. But with housing prices having increased over the past year, you might need a larger down payment to stay within affordable range. While a low mortgage rate can help offset down payment expenses, a large home loan can overshadow the potential savings from a low mortgage rate.

Mortgage Rates and the Housing Market: Looking Forward

The upcoming busy spring 2022 homebuying season is expected to be a seller's market with low inventory, high demand, and a continuation of rising home values. Still, experts like Kerry Melcher, head of real estate at Opendoor, say it will not be as intense as 2021 and "more like a regular spring season."

On the rate front, several experts we spoke with say to expect rate volatility in December and going forward into early 2022. Consumers tend to agree with the experts that rates will increase over the next 12 months, according to a recent Fannie Mae housing study. How fast or slow they increase is likely to be dependent on a number of economic factors.

Rising inflation, strained supply chains, and a strong employment outlook have been cited by experts as reasons behind the upward pressure on mortgage rates. Fears over the Omicron variant may push rates down, but some experts believe it will be short-lived. Raphael Bostic, the Federal Reserve Bank of Atlanta president, recently stated: "Each successive wave of COVID-19 has led to milder economic slowdowns. If that holds, the economy will continue to grow through it."

What Rate and Housing Market Predictions Means for Borrowers

Here is what current and future mortgage rate and market predictions mean for borrowers:

Homebuyers

Some experts advise delaying a home purchase until the market cools further. Others say not to time the market and buy when the time's right for your personal situation. Elizabeth Rose, certified mortgage planning specialist with Mortgage300, told us recently she is against waiting for a rate dip to lock in. "If you're looking to time the market … you're probably setting yourself up for disappointment," she said. Rates are still favorable even with the moderate increase we've been seeing, says Rose.

To avoid "panic-buying" and "buyer's remorse", housing experts recommend planning ahead:

1. Know how much house you can afford
2. Sticking to a home buying budget
3. Save for a large enough down payment
4. Work with an experienced local agent

Homeowners

Now may be a good time for a refinance. Homeowners who are on the fence about refinancing may want to consider it. Rates are likely to continue its upward trajectory in the long term, so it may be worth crunching the numbers with a few lenders to see if you can benefit.

Public link

Please use the above public link if you want to share this noodl on another website.