Rising Rates From Strong Economic Data, But Still Near Record Lows.

Mortgage rates have recently been seeing higher upticks, indicating a steady economic recovery. Last week (from 15 to 21 February), the rates took the biggest leap in more than a year. According to Bankrate data, the 30-year fixed-rate mortgage reached 3.04% on 22 February, which was 2.8% on 10 February.

Mortgage rates are still near record lows, but the continuous growth could trigger some trends that may not be positive for the housing market, especially for the consumers.

The receding curve of COVID-19 infection, recovering economy, unemployment reduction, and the government’s monetary stimulus packages have encouraged the buyers to return to the housing market. Additionally, cheap mortgages and possible inflation predictions have fueled the demand, creating an imbalance in supply and demand.

The interest rates are unlikely to take a U-turn pretty soon, and experts don’t expect skyrocketing figures either. In truth, rates are still relatively low, as the 30-year rate was nearly 5% even a decade ago. Yet, what could be the impacts of the steady rising rates?

Treasury Yields Could Increase Even More

After bottoming at 50 basis points, the 10-year Treasury yield has been growing since August 2020. On February Friday, it was 1.35%, which has a high chance of growing even more and reaching 1.5%. 

However, the yield won’t increase rapidly unless inflation breaks out or the Fed tightens the policy. Even if inflation happens, it is unlikely to go out of control. Any policy change is not on the horizon, too, since James Bullard, the St. Louis Fed President, dismissed this possibility.

Refinancing Applications Drop

The increasing mortgage rate has caused a decrease in refinancing applications, which is understandable because a home loan refinance directly relates to the ups and downs in the weekly mortgage rates.

The good news is that even with a slight downward curve, the refinancing rate is still much higher in the year-to-year index. It fell just 5% from the previous week, but the rating is still 51% higher than the same period in 2020.

The gap is minimal if you consider the total refinancing applications. It decreased just 0.9% from the previous week’s 70.2%.

Buying Trend Will Continue

Interest rates creeping up have curbed the refinancing trend slightly, but rates are still low enough for buyers to apply for a mortgage. According to the data from the National Association of Realtors, the housing market is hot as the year-to-year home buying rate in January 2021 jumped 24%.

The data indicates a booming buying trend all across the country. The demand is much higher than the number of homes in the market. Morgan Stanley Investment Management’s head of global macro strategy, Jim Caron, thinks that the buying trend will take a huge leap in the coming months.

The new stimulus package will grant individuals a $1,400 stimulus check (the previous one was $600), which will give people more buying power. Caron reckons that a considerable portion of that money will go into the housing market.

Sources: Marketplace, CNBC & Financial times