Mortgage Rates Retreat As Virus Fear Clouds Christmas Cheer

Mortgage rates retreated this week, reflecting fears about the omicron variant of the coronavirus. The average rate on 30-year mortgages dipped to 3.26 percent from 3.28 percent last week, according to Bankrate’s weekly survey of large lenders.

Mortgage experts expect rates to continue their climb from the all-time bottom achieved in January 2021, but the latest public-health scare changed things a bit. A year ago, the benchmark 30-year fixed-rate mortgage was 2.95 percent. Four weeks ago, the rate was 3.24 percent. The 30-year fixed-rate average for this week is 0.08 percentage point below the 52-week high of 3.34 percent, and 0.33 percentage points higher than the 52-week low of 2.93 percent.

The 30-year fixed mortgages in this week’s survey had an average total of 0.32 discount and origination points.

Over the past 52 weeks, the 30-year fixed has averaged 3.12 percent.

  • The 15-year fixed-rate mortgage fell to 2.5 percent from 2.52 percent a week ago.
  • The 5/1 adjustable-rate mortgage fell to 3.34 percent from 3.35 percent (with the caveat that many lenders have shifted to the 5/6 ARM).
  • The 30-year fixed-rate jumbo mortgage was 3.24 percent, up from 3.21 percent last week.

Where mortgage rates are headed

Worries about a resurgence of coronavirus cases are weighing on stocks and on U.S. Treasury yields, which were in the range of 1.46 percent Wednesday. Last month, yields had climbed as high as 1.65 percent. Meanwhile, the Federal Reserve signaled Wednesday that it will raise rates in a move to rein in inflation.

Mike Fratantoni, chief economist at the Mortgage Bankers Association, says the average rate on a 30-year mortgage will reach 3.5 percent by mid-2022 and 4 percent by late 2022.

“Inflation is running well above target, and the job market is booming,” Fratantoni says. “That is why it was no surprise that the Federal Reserve moved to accelerate their taper of Treasury and (mortgage-backed securities) purchases, and signaled that the first rate hike will be coming sooner rather than later. Moreover, the median (Federal Open Markets Committee) member now expects three rate hikes in 2022.”

The Mortgage Bankers Association expects refinancing activity to disappear as rates rise. But it also expects a strong home-sales market in 2022.

Mortgage experts offer mixed predictions about the direction of rates in the next week in Bankrate’s latest survey.

“Uncertainty about COVID dominates the news and investor choices about where to put their money,” says Dick Lepre, senior loan officer at RPM Mortgage in Alamo, California. “People are starting to realize that no one has the faintest clue as to when this disease and its seeming never-ending trail of variants will end. Uncertainty drives money to the safety of fixed-income securities and keeps mortgage rates low despite high inflation numbers.”

Meanwhile, the Federal Reserve last month announced its long-anticipated “taper” of asset purchases, and the Fed has since said it might accelerate the pace of the taper. While that move creates upward pressure, mortgage rates are unlikely to spike as a result of the taper. However, the Fed’s changing stance does set the stage for a gradual rise in rates.

“Now is a great time to refinance to consolidate debt, do needed home renovations and eliminate PMI if you have it,” says James Sahnger of C2 Financial Corp.

Refinances are still a pretty good deal at these rates

Rates remain a bit above the record lows reached earlier this year, but refinancing remains a historically excellent deal. The rate on 10-year bonds issued by the U.S. government moved to 1.46 percent this week. The 10-year Treasury is closely tied to 30-year mortgage rates.

Economists generally expect rates to rise by the end of 2022. As mortgage rates make a predicted slow climb to the 3.5 percent range, decreased purchasing power might ease some of the pressure on home prices.

But competition will remain intense among those who can still afford to buy. Those looking to refinance should be able to find good deals, though at rates a bit higher than the current level.

The bottom line: If you see a rate that fits your needs and budget, the time to do that refinance could be now. In fact, many homeowners with a mortgage haven’t taken advantage of the low rate environment. Among homeowners with a mortgage they’ve had since before the pandemic, 74 percent have not refinanced, according to a recent Bankrate survey.

“The overwhelming majority of mortgage borrowers have not yet refinanced, despite record-low rates over the past year,” says Greg McBride, Bankrate’s chief financial analyst. “Cutting the monthly mortgage payment by $150 or $250, possibly more, can create valuable breathing room in the household budget at a time when so many other costs are on the rise.”

Methodology

The Bankrate.com national survey of large lenders is conducted weekly. To conduct the National Average survey, Bankrate obtains rate information from the 10 largest banks and thrifts in 10 large U.S. markets. In the Bankrate.com national survey, our Market Analysis team gathers rates and/or yields on banking deposits, loans and mortgages. We’ve conducted this survey in the same manner for more than 30 years, and because it’s consistently done the way it is, it gives an accurate national apples-to-apples comparison. Our rates differ from other national surveys, in particular Freddie Mac’s weekly published rates. Each week Freddie Mac surveys lenders on the rates and points based on first-lien prime conventional conforming home purchase mortgages with a loan-to-value of 80 percent. “Lenders surveyed each week are a mix of lender types – thrifts, credit unions, commercial banks and mortgage lending companies – is roughly proportional to the level of mortgage business that each type commands nationwide,” according to Freddie Mac.

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