Key Takeaways:
- The 30-year fixed rate was 2.78% in mid-July but has inched up to 3.05%;
- Although increasing, rates are still only 0.4% above last year’s record lows;
- Impact on home buying and remodeling currently appears negligible;
- Interest rates are expected to rise in coming months as the Fed seeks to keep inflation under control.
By Manuel Gutierrez, Consulting Economist to NKBA
Almost in synch with higher inflation, mortgage rates have begun to uptick over the last few months, although they still remain near historically low levels.
The 30-year fixed mortgage rate, still the most commonly used indicator for home loans, is currently at 3.05%. This is just over a quarter of a percent higher than the 2.78% average rate seen three months ago, in mid-July.
Additionally, the latest rate is only 0.4% above the all-time record low of 2.67%, registered at the end of last year.
In Figure 1, which tracks the weekly 30-year fixed mortgage rate for the last 12 months, the recent trend is approaching the 2021 high of 3.18%, reached in early April.
30-year mortgage rates of 3.05% are approaching the 2021 high, reached in April, of 3.18%.
Consumer prices are expected to continue to rise, and this will exert strong pressure on interest rates for the next few months. Concurrently, the Federal Reserve Bank is likely to follow a more restrictive policy going forward. There is a growing consensus among Fed policymakers for the need to increase interest rates to keep inflation in check.
The recent upward trend in mortgage rates can also be seen in the other two common types of mortgage loans, shown in Figure 2.
The 15-year fixed rate (blue line) is currently at 2.3%, three-quarters of a point lower than the 30-year rate (red line). This follows the usual relationship between the two. Note that these rates exclude lending costs such as “points” charged for closing a loan, which often narrows the gap among the various types of loans.
The last type of rate shown in Figure 2 is the ARM, or adjustable rate mortgage (red line), which typically falls somewhere between the other two.
Low mortgage rates remain quite favorable toward home purchases and remodeling by homeowners. Recent increases in those rates are not necessarily a concern for K&B remodeling, or a sign that activities will be curtailed.
Recent research from the Federal Reserve Bank of New York, which reviews the impact that changes in mortgage rates have on consumer willingness to pay more for a house, reveals that this impact is very minimal. The findings of this research imply that recent increases in mortgage rates should not negatively impact housing demand or home sales.
However, this conclusion cannot necessarily be drawn for other types of consumer debt, such as credit cards. Increases in interest on credit cards is likely to have a negative impact on consumer willingness to engage in additional credit card charges.
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