Despite a record-setting pace of inflation, U.S. mortgage rates have remained low for much of this year. However, this could very well change in the weeks and months ahead. With the Federal Reserve signaling that it is rolling back the measures it has taken to shore up the economy during the pandemic, it is largely expected that mortgage rates will begin to move up. For the past 18 months, the Federal Reserve has been purchasing bonds which has helped maintain mortgage rates at low levels. During their next meeting in early November, the Federal Reserve is expected to announce that it will be reducing its monthly bond purchases.
Mortgage rate predictions
Across the real estate and mortgage industries, it is widely believed that mortgage rates will continue rising in the year ahead. Of course, inflationary pressures will be a significant factor in determining just how much these rates rise. As for mortgage rate predictions, here are some ranges expected for 30-year fixed mortgages:
- Mortgage Bankers Association: 3.1% the end of 2021; 4% by the end of 2022
- National Association of Realtors®: 3.5% by mid-2022
A key measure of inflation is the consumer price index. This measure increased 5.4% from a year earlier in September, marking the highest increase seen since 2008. Historically speaking, inflation has been lower than the 30-year mortgage rate. However, since April inflation has been above the long-term mortgage rate. The last time inflation ran higher than the average rate on a 30-year home loan was August 1980, according to the Federal Reserve.
Although mortgage rates are expected to rise, the housing market is still projected to remain competitive. Of course, higher rates will likely price some prospective home buyers out of certain markets. In addition, mortgage refinancing will also decrease as rates tick up. If you are still considering refinancing your mortgage, there is still time to do so. In fact, mortgage rates are still lower than anything seen prior to the summer of 2020. The silver lining for home buyers is that the reduced amount of mortgage refinancing may tempt banks to make up for the lost revenue by offering to lower fees in order to woo would-be home buyers shopping for a mortgage.
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