Mortgage Rates are Increasing. Here’s What You Need to Know.
Mortgage rates are increasing, but that doesn’t mean that the real estate market is slowing down.
Since the start of the pandemic, to help ease the burden of financial hardship and keep money in the economy, mortgage rates have continued to drop to historically low rates. With rates dropping below 3% for the first time ever, buyers flooded the market in hopes of securing their dream home at a rate they never thought possible.
As more American’s return to work now that the vaccine has become available, mortgage rates are beginning to increase.
Why Are Mortgage Rates Increasing
The first thing you need to understand is when it comes to projecting rate increases, is we have to tread with caution. Mark Fleming, Chief Economist at First America, is quoted as saying, “You know, the fallacy of economic forecasting is don’t ever try and forecast interest rates and or, more specifically, if you’re a real estate economist mortgage rates because you will always invariably be wrong.”
Mark said on a recent podcast interview that rates are so low right now, the odds of them going higher, must be really high because they really cannot go much lower.
What we’re understanding is, rates are so low right now that there’s no space for them to go any lower, so at some point, they’re going to have to start increasing.
How High will Rates Increase in 2021
At this point, economists don’t foresee mortgage rates increasing too much higher than where they already are. Last week, Freddie Mac had mortgage rates at 3.02 percent, the highest they had been since last July. The increase caused many to wonder if the real estate market would start to see a negative impact.
“Economic spending has improved due to the most recent stimulus, but supply chain shortages are causing downstream inflation, leading to higher mortgage rates. While there are multiple temporary factors driving up rates, the underlying economic fundamentals point to rates remaining in the low 3 percent range for the year,” said Sam Khater, Freddie Mac’s Chief Economist.
This means that while there are a number of economic factors driving the rates up, they are temporary, and we should continue to see rates in the low 3% range for the year.
What Does All This Mean for Homebuyers
Buyers want to get the best deal possible when it comes to purchasing a home, and any increase in rates will increase their mortgage payment. However, the slight increase should not alarm anyone to the point that they should hold off on buying a house.
Let’s take a look at the mortgage rates over the past five years…
- 2016: 3.65%
- 2017: 3.99%
- 2018: 4.54%
- 2019: 3.94%
- 2020: 3.11%
It’s true that as a homebuyer, you may not get the sub-3% rate you would have several weeks ago, but getting a rate at just over 3% is still better than the rates we’ve seen over the past five years. If you’re ready to get started buying your next home, be sure to contact Pat and Bill to learn how they can help you with all your local real estate needs.