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Mortgage rates continued to move up for the second straight week. Specifically, the 30-year fixed mortgage rate rose to 3.09% from 3.05% the previous week. Meanwhile, rates went up by 10 basis points (0.10%) in the last two weeks.
Here are a couple of reasons behind the increase.
First of all, the 10-year Treasury yield inched up to its highest rate in more than four months. Despite supply chain disruptions, consumer demand remains strong as concerns over rising prices in the following weeks may spur consumer activity even further, keeping inflation elevated. Secondly, the Fed will likely start reducing the pace of its monthly bond purchases as soon as next month. This strategy will put upward pressure on mortgage rates. Thus, the upcoming Fed meeting in the beginning of November may determine the exact timing of the tapering. NAR forecasts mortgage rates to average 3.3% for the last quarter of 2021.
How will these higher rates impact homebuyers? For every home purchase that involves a mortgage, both the rate on the mortgage and price of the home will affect the size of the monthly mortgage payment. In the meantime, home prices continue to surge. While home prices typically rise 4%, they have increased about 17% on average so far in 2021. As a result, millions of homebuyers have already been priced out even though mortgage rates are low. Approximately 4.8 million fewer households can buy a residence now versus two years ago, even though mortgage rates are lower than in 2019. Thus, although rates will continue to be historically low, these rising mortgage rates in combination with growing home prices will erode affordability even further. About 7.4 million households are expected to be priced out next year, and 1.1 million of them are estimated to be first-time homebuyers.
Nevertheless, NAR forecasts homebuying activity to remain strong going into next year as existing-home sales will reach 6 million units, roughly the same as this year.
