Mortgage rates set to rise as US Treasury yields rise


LOS ANGELES (AP) – The long period of record high mortgage rates may soon end.

Long-term bond yields, which can influence interest rates on mortgages and other consumer loans, rise this month amid expectations of increased spending by the U.S. government to fight the pandemic and an economic recovery as more people get vaccinated against COVID-19.

The 10-year Treasury yield briefly hit 1.18% earlier in the week. That’s up from less than 0.90% at the start of the year and the highest since last March. Yields rise when bond prices fall.

Economists are forecasting further modest mortgage rate hikes this year. While this is unlikely to derail the scorching housing market, it could make it harder for potential buyers.

“As bright as the economic outlook is after vaccines hit critical mass, there are still a lot of economic pain points that we need to overcome by then,” said Greg McBride, chief financial analyst at Bankrate. “It will always be a very low rate environment, even for long-term rates like mortgages. “

Mortgage rates tend to follow the movements of the 10-year Treasury yield. Damage from the coronavirus pandemic to the United States and global economies fueled demand for U.S. bonds, driving down their yields. As a result, mortgage rates have also fallen for most of 2020.

The average 30-year fixed-rate benchmark mortgage rate fell to 2.79% this week, from a record low of 2.65% last week, according to mortgage buyer Freddie Mac. The rate stood at 3.65% a year ago. It is now at its highest since mid-November.

McBride predicts that the average rate on a 30-year mortgage will drop to 3.1% by the end of the year. This is in line with the National Association of Realtors outlook and close to the Mortgage Bankers Association forecast of 3.2%.

Record mortgage rates helped fuel a housing boom last summer after a brief slowdown in the spring due to lockdowns from the coronavirus.

In November, sales of previously occupied U.S. homes were nearly 26% higher than a year earlier, according to NAR. The burning housing market has left the number of properties available for sale at record highs, which has contributed to a sharp increase in house prices. In November, the median home price in the United States was $ 310,800, up almost 15% from the previous year, according to NAR.

Mortgage rates still have a way to go before they return to where they were a year ago. This means that homeowners can still benefit from refinancing at a lower rate.

Of course, rising mortgage rates decrease the purchasing power of buyers, especially as home prices continue to rise.

“This rapid increase has probably pissed off many home buyers, especially those with a financial margin, who are currently facing a very competitive market in which prices are rising at their fastest rate in decades,” Matthew said. Speakman, economist at Zillow.

Speakman warns that rates remain historically low and could change direction again.

“As has been the case for months, the way forward for mortgage rates, and indeed the economy, will be dictated by our ability to contain and deal with COVID-19 as well as improving markets. work, ”he said. “In the absence of significant progress on these fronts, there remains a limit to the rise in mortgage rates for the near future.”

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