Mortgage rates jumped higher this week. It could be just the beginning of an upward trend.
The average rate on the popular 30-year fixed mortgage just crossed back over 3% early this week and then jumped 9 basis points Thursday to 3.10%, according to Mortgage News Daily. The rate was 2.93% a week ago.
The move is both a reaction to the latest commentary from the Federal Reserve on when it will raise rates and when it will begin to taper its purchases of mortgage-backed bonds. Fed Chairman Jerome Powell indicated both would happen sooner than was widely expected.
While mortgage rates do not follow the Federal Funds Rate, they do loosely follow the yield on the 10-year Treasury, which just hit the highest level since July 2nd.
In addition to the Fed, rates are also reacting to general news on the economy and Covid-19.
“If we consider why mortgage rates ended up crushing previous all-time lows in 2020, the answer was clearly Covid,” said Matthew Graham, chief operating officer at Mortgage News Daily. He noted that vaccines and plummeting case counts pushed rates higher in early 2021 and then the Delta surge brought them lower again in July.
“While the pace and the volatility will vary due to other factors, we have always been destined to move back toward higher rates as the pandemic subsides, and this week’s case counts suggest it’s subsiding again,” he added.
While rates are still low historically, today’s housing market is so pricey that even the smallest rate moves are having an outsized effect on buyers, especially first-time buyers. Prices continue to rise at a double-digit pace for both newly built and existing homes.
As a result, the first-time buyer share of sales in August dropped to just 29%, the lowest since the start of 2019, when rates on the 30-year fixed were over 5%. Historically, first-timers make up about 40% of home sales.