Mortgage rates soared to their highest level since the beginning of the pandemic in the first week of 2022, according to Freddie Mac.
The 30-year fixed-rate mortgage averaged 3.22% in the week ending on Jan. 6, up from a 3.11% average during the previous week and marking the highest level since May 2020, Freddie Mac announced Thursday. The 30-year rate dropped to 2.65% in early 2021, its lowest level on record.
“Mortgage rates increased during the first week of 2022 to the highest level since May 2020 and are more than half a percentage higher than January 2021,” said Sam Khater, chief economist at Freddie Mac, according to a company release.
“With higher inflation, promising economic growth and a tight labor market, we expect rates will continue to rise,” Khater said. “The impact of higher rates on purchase demand remains modest so far given the current first-time homebuyer growth.”
The Federal Reserve released minutes from its December meeting on Wednesday suggesting tighter monetary policies to combat surging inflation and labor market difficulties. To cool the economy, the Federal Open Market Committee (FOMC) plans to end its asset-purchase stimulus by March, and it signaled three rate hikes in 2022 starting in March instead of June, its previously scheduled starting date.
Low borrowing costs have fueled a housing market that has been hot for over two years, Bloomberg reported.
Rates are expected to climb throughout 2022, Lawrence Yun, chief economist at the National Association of Realtors, told CNN, saying the 30-year fixed mortgage rate is projected to average 3.7% by the end of the year.
LendingTree economist Jacob Channel, on the other hand, sees rates nearing 4% on average, according to CNN.
“This could make home affordability an even greater challenge — especially for lower income buyers,” Channel told CNN. “Fortunately, rising rates aren’t all bad news, as higher rates will likely mean fewer new homebuyers and an overall less hyper-competitive housing market.”