Mortgage Rates Climb Over 3%

Freddie Mac released the results of its latest Primary Mortgage Market Survey showing that the 30-year fixed-rate mortgage is now averaging over 3.0%. (Freddie Mac)

– 30-YR fixed-rate average was up 5 basis points to 3.02% with an average 0.6 points for the week ending March 4, 2021.  The rate is still down from last year when it averaged 3.29 percent.

– 15-YR fixed-rate average was unchanged from last week at 2.34% with an average 0.7 points.  The rate is down from last year when it averaged 2.79 percent.

Sam Khater, Freddie Mac’s Chief Economist, said in a statement, “Since reaching a low point in January, mortgage rates have risen by more than 30 basis points…While purchase activity remains high, it has cooled off over the last few weeks and is currently on par with early March, prior to the pandemic.”

So is this a bad thing for housing? There are two schools of thought on this.

– Affordability issues.  Rising rates with rising prices are undoubtedly going to price people out of the market.  But it’s important to remember this was already happening.  As we discussed on Monday, a study by NAHB found, “that a $1,000 increase in the U.S. median new home price of $346,757 would push 153,967 households out of the market.”  Rising rates will price more people out of the market.  This is true, but slowly rising rates will also help cool the housing market.

– The market needs to cool down.  Read any report or article about housing over the last few months and you will hear about the crazy bidding wars that have been happening all over the country.  A month ago, The Wall Street Journal reported that couples were so desperate to win their bidding war they were offering to forgo basic due diligence which of course they would later regret.  Most economists would admit the real estate market needs to cool down.  This is why an upward movement in rates is not the end of the world.

When an economy overheats the fed will step in and slow things down by raising interest rates.  The housing market is no different.  We will most likely be better off in the long run with a little cooling off period. In fact, UBS analyst Jonathan Woloshin made this very point in a Wednesday note.  He argued increasing mortgage rates could help temper home price appreciation which he believes, “would actually be a positive for longer-term health of the housing market, in our view,”