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Mortgage rates jumped above 4% to their highest level since April 2019. Specifically, the 30-year fixed mortgage rate rose to 4.16% from 3.85% the previous week. We signaled multiple times before that mortgage rates would rise in response to the Federal Reserve's strategy of raising short-term interest rates. Although the Federal Reserve doesn't set up mortgage rates, a higher rate for banks typically makes borrowing more expensive, affecting the 10-year Treasury bond – an indicator for mortgage rates. While the next few weeks will be unpredictable as markets continue to churn, the outlook is for mortgage rates to rise even higher. The Federal Reserve indicated six more interest rate increases by the end of the year. Nevertheless, inflation will eventually start slowing down sometime later this year. The Federal Reserve forecasts inflation to average 4.3% in 2022. Thus, expect some of this impact to be mitigated eventually through lower inflation. NAR expects mortgage rates to average around 4.3% at the end of the year.
These higher mortgage rates will affect many home buyers, especially first-time home buyers. Since the beginning of the year, nearly 6.3 million households have already been priced out. Nearly 2 million of these households are millennials. Nevertheless, housing supply is still at record lows. As homebuying activity typically increases in the spring with its peak in June, the housing market will continue to outperform compared to pre-pandemic. NAR expects home sales to be 10% higher in the next 6 months compared to the same period in 2019.
