USA

US Mortgage Rates Climb To 8 Month High, As Yields Soar

US Mortgage rates are climbing, and are up significantly from the record low a few weeks ago. Freddie Mac‘s Primary Mortgage Market Survey (PMMS) shows 30-year fixed mortgages hit a multi-month high for the week ending March 4, 2021. The lender said this is the highest average reading for the index since July.

US 30-Year Fixed Mortgages Hit 8 Month High

The average US 30-year fixed mortgage hit the highest level in months. Freddie Mac data shows the average rate reached 3.02% for the week ending March 4, 2021. Just a week before, the rate was only 2.97%. The all-time low was in the first week of January, when it fell to 2.65%. This is a very rapid climb.

US 30-Year Fixed Mortgage Rates

The average US mortgage rate for a 30-year fixed mortgage, according to Freddie Mac’s Primary Mortgage Market Survey.

Source: Freddie Mac, Better Dwelling.

Mortgage rates are still below pre-pandemic levels, but are quickly reversing. This time last year, the rate was 3.29%, but those were pre-pandemic days. However, consider the all-time low was only in January. Almost half of the drop has reversed over just the past two months. Borrowers may be facing pre-pandemic mortgage rates in just a few more months.

Mortgage Borrowers Face Reduced Budgets

To understand how this impacts borrowers, let’s run some numbers on a household. A household making $100,000 on March 4, 2021, would have seen the maximum qualifying rate reduced around 0.6% compared to the week before. This week’s household would also see the maximum amount drop by 4.6% compared to one in the first week of January. Borrowers are seeing budgets shrink almost as fast as they expanded.

Treasury Yields Driving Rates Higher

Mortgage rates are rising as Treasury yields surge higher these past few weeks. Rising Treasury yields pressure mortgage rates to rise, to stay competitive. Otherwise investors in riskier mortgage backed securities, would flow into safer Treasury yields. Concerns about the virus are now being replaced with concerns of inflation. Investors don’t want to be caught with inflation adjusted losses. This problem isn’t unique to the US, with Canada also experiencing a similar issue.

Freddie Mac also noted purchasing activity remained high, similar to pre-pandemic levels. Lower rates provided lift to budgets, helping to push prices higher. Higher rates are likely to reverse some of that lift, and slow price growth. Whether the economy has improved enough to take over the home buying stimulus of rock bottom rates, remains to be seen.

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4 Comments

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  • Joseph Krek 2 months ago

    US rates will drive CAD regardless. Canada’s a small fish compared to the US.

  • Old Greg 2 months ago

    I have my fingers crossed that we hit 5-7% interest, which is what we need. This would be the wake up call overleveraged homeowners need to learn as they do not want to look into the fundamentals but instead listen to RE agents who are “salesman” which is to say not your friends… The whole industry needs a investigation launched into the practices they employ, couple this with the money laundering this country is notorious for, put this all together and I betcha you’ll watch peoples asset prices go from sky high to “get me outta here” now as they slowly lose all the fictitious equity..

    • Axel McLion 2 months ago

      I can’t see it happening. We are coming out of COVID with an even less healthy economy. I expect more of the same as what we saw pre-COVID, but even worse. Interest rates probably will go up a little bit, but will remain generally lower than pre-COVID levels.

      I expect real estate prices will remain elevated, but I don’t see a lot of upside. Government regulation could bring them down, but the government apparently does not want to do that. Government could also bring them down by stopping printing money and allowing things to unravel a bit, but I don’t see that happening either.

      We might eventually get hyperinflation if the government prints too much and/or faith in the currency is abandoned. That is likely the end game unless an intentional “reset” is done before then, which would bring about a currency transition in a more orderly fashion.

  • straw walker 2 months ago

    Many are suggesting rising rates on long bonds are a result of the future economic growth that is coming. .but this is NOT correct…
    Rates are moving higher because of monetary inflation, not economic inflation.
    After years of zero rates and endless printing of government debt and flooding the market with worthless paper money, western central banks are now paying the piper..
    Japan’s yen is in steep decline, even against the falling US dollar. This results in currencies losing their buying power, and the rise of Bitcoin..
    Super high inflation is just around the corner..2% by spring..4% by summer and 5 to 6% by Xmas.
    Governments debasing their currencies, and believing in the “new order of economics”.
    Say goodbye to high house prices if they require a mortgage..

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