U.S. mortgage rates started rebounding in the second week of 2021, with the 30-year mortgage rate hitting the highest level since mid-November. According to Freddie Mac, the 30-year fixed-rate mortgage (FRM) averaged 2.79 percent for the week ending January 14, 2021 (up from 2.65 percent last week). A year ago, it stood at 3.65 percent.
“As Treasury yields have risen, it is putting pressure on mortgage rates to move up,” said Sam Khater, Freddie Mac’s Chief Economist. Despite this spike, the 30-year mortgage rate remains close to the lowest on record and has been consistently below 4 percent since June 2019.
The decline in borrowing costs has supported the housing industry and especially prices. As a matter of fact, in October, the S&P CoreLogic Case-Shiller index (20-City Composite) increased at the fastest pace since June 2014 and is expected to gain traction in the coming months. In this context, I won’t be surprised if housing prices grow by more than 10 percent YoY at some point in the first half of 2021.
Meanwhile, refinancing applications are also expected to jump in the short term (after increasing by 20.1 percent in the week ended Jan. 8). The recent rise in mortgage rates has probably pushed several households to rush in refinancing their homes*.
*Note: Usually, it’s beneficial to refinance if the interest rate is at least 50 basis points lower than the current rate a homeowner has, depending on how high the closing costs are.