Mortgage rates expected to rise in February

Count on the groundhog to see its shadow long before we see a drop in mortgage rates.

Where do experts see mortgage rates heading in February? We asked several pros for their predictions, and the consensus is clear: mortgage interest rates aren’t going to drop anytime soon.

“I expect the benchmark 30-year fixed rate to probably average between 3.65% and 3.85%, with the 15-year fixed rate between 2.8% and 3% over the course of the month,” said Greg McBride, chief financial analyst at Bankrate. “The bulk of these rate hike moves were made in January as markets revised their expectations of the Federal Reserve. Moves in the coming weeks should be more subdued, however.

Steve Adamo, president of retail production at Embrace Home Loans in Middletown, Rhode Island, expects 30-year fixed rates to average between 3.625% and 3.75% this month, and that 15-year fixed rates remain between 2.875% and 3%.

“Over the past few weeks, we have seen an increase in rates due to market conditions as well as loan-level pricing adjustments from the Federal Housing Finance Agency on certain products,” Adamo says.

Others forecast slightly lower rates over the next four weeks.

“Mortgage rates will continue to rise in February. Inflation will remain elevated as the Fed is unlikely to raise interest rates for the next two months,” said Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors. “Remember that when inflation rises, lenders demand higher interest rates to compensate for lower purchasing power. Thus, I expect the 30-year fixed mortgage rate to average 3.5% in February versus 2.7% for the 15-year fixed rate.

Len Kiefer, deputy chief economist at Freddie Mac, agrees. His organization predicts an average rate of 3.5% for the 30-year fixed rate mortgage through February.

“Rates are rising rapidly week by week as we begin 2022. The rise in mortgage rates reflects market sentiment on Federal Reserve policy, where three or four interest rate hikes are widely expected this year” , he said. “The increase in the expected path of short-term rates and rising inflation put upward pressure on long-term interest rates, including mortgage rates.”

Screening until March

Beyond February, the outlook for mortgage borrowers is unlikely to improve much.

“The Fed will end its purchases of mortgage-backed securities by March,” Evangelou said. “As inflation rises even faster, the Fed may need to raise interest rates sooner than expected. We will likely see the first increase late in the first quarter. mortgage rates over the next few months. I expect the 30-year rate to average 3.5% for the first quarter of 2022.”

Adamo thinks rates in the first quarter will vary within a fairly small window – likely plus or minus 0.125 percentage points from their current level.

“Markets have adjusted quite quickly over the past few weeks as the global market digests a potential Fed decision,” Adamo notes.

Prepare for volatility in the rates market in the early months of this year as the market digests news on omicron and seeks unanimity on future Fed policy.

“But as the uncertainty around these macro events fades, interest rates should settle on a path of gradual increases through the rest of this year,” Kiefer said. “What is unexpected is the route taken by the omicron virus in late winter and early spring. There could also be a number of macroeconomic risks that emerge in 2022 that are not currently on. the radar – things like geopolitical uncertainties or new shocks hitting the global economy.

McBride is looking at 30- and 15-year fixed-rate mortgages reaching as high as 3.9% and 3%, respectively, before April.

“Inflation is the fulcrum of the wheel that will dictate how aggressively the Fed’s stance will be taken,” McBride says.

Of course, if inflation slows, mortgage rates may not climb as high as many fear. The NAR expects inflation to begin to decline in the second half of the year, rising to 4.5% by the end of 2022.

Curious to know what the other authorities in the sector are anticipating in terms of tariffs? In their latest mortgage finance analyzes forecasting the 30-year fixed rate in the first quarter of 2022 and the full year, Mortgage Bankers Association predicts 3.3% and 4.0%, respectively, while Fannie Mae predicts 3.2% and 3.3%, respectively.

Proceed with caution

If you’re in a solid financial and professional position, now is a good time to lock in a relatively low interest rate on a mortgage purchase or refinance loan, our experts agree. But getting an affordable rate is just one hurdle to jump.

“For potential buyers, getting approved for the mortgage might be the easy part. The struggle will continue to be whether or not you can find a home available for sale in your price range. The good news is that mortgage rates are still very low in a historical context, but the surge in house prices coupled with the recent rate hike has crowded out more potential buyers, especially first-time buyers,” McBride said. “Nobody likes to see mortgage rates go up as quickly as they have because it hurts affordability and breaks the veils on the housing market a bit. But a 30-year fixed rate mortgage is still your best indicator of affordability. If you can’t afford a house with a 30-year rate that can still be less than 4%, you can’t afford the house, period.

Kiefer is also firmly in this camp.

“Given the importance of the financial decision to buy a home, borrowers should not rush into the market. If you have to ask if it’s a good time to buy, it could be a good signal that you’re not ready to buy a house yet,” says Kiefer.

If rising rates are a downside, remember to put things into perspective.

“Even though mortgage rates have increased, these rates are still historically low. Remember that the rates were 4.5% three years ago,” adds Evangelou.

For those who dithered on refinancing, “that noise you heard was the door closing. Mortgage rates have returned to levels last seen in March 2020,” adds McBride.

Still, if you can lower your interest rate and realize significant interest savings, and can afford the fees and closing costs involved, a refinance may be just the way to return home ownership. more affordable property.

“The lows we experienced during the pandemic are not likely to return in the near term,” Adamo says. “But the rates are still in the affordable range if you look at the historical average.”

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