Instant Reaction: Mortgage Rates, December 9, 2021

Mortgage rates continued to remain roughly stable for the last 4 weeks, despite volatility in bond yields. Specifically, the 30-year fixed mortgage rate slightly fell to 3.10% from 3.11% the previous week. It seems that while there is certainly a concern about the impact of the omicron variant on the economy, investors are optimistic that it won’t have any significant impact on markets. Meanwhile, the Fed’s potential faster tapering and inflation are also among the factors that will affect mortgage rates in the upcoming weeks. U.S. inflation figures will be available on Friday, while the Fed’s meeting will follow next week. A higher inflation and a faster tapering process could rise yields and mortgage rates. NAR forecasts the 30-year fixed mortgage rate to average 3.2% in December.

In the meantime, home prices continue to rise as housing supply remains low. According to NAR, in October home prices rose 13% while housing inventory dropped 12% compared to a year earlier. As a result, current homebuyers are having difficulty in finding a home to purchase as there are not enough homes for sale that they can afford to buy. Take a look below at the share of homes a household earning $100K could afford to buy now versus 2 years ago.

Thus, due to weaker affordability and lower inventory, there are about 503,000 fewer homes available for sale that this household can currently afford to buy compared to 2 years ago. While housing supply isn’t expected to rise significantly anytime soon, some of these would-be homebuyers may rent instead of buying a single-family home. There are currently 11.3 million single-family homes that are renter occupied across the country. Nevertheless, the conversion of a single-family home from owner-occupied status to rental status has major implications on the number of homes available for sale in the future, decreasing housing supply even further.