Mortgage rates up to highest level in months after historically low run

Mortgage rates rose closer to 3% this week, further away from historic lows seen in early January.
According to Freddie Mac, a government-sponsored agency that guarantees millions of mortgages, the average interest rate on the 30-year fixed-rate mortgage - the most common home loan - rose from 2.81% the previous week to 2.97%. This is the highest level since mid-August.
Read More: Mortgage Rates Near All Time Lows: Is It Time For A Refinance?
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"The market was responding to some key drivers of economic growth - and good news for the economy usually means higher mortgage rates," Christian Wallace, director of sales for digital homeownership company, told Yahoo Money, noting another round of potential government incentives and the largely smooth introduction of the COVID-19 vaccine. "Much of the economic recovery depends on this introduction, so its progress is likely to drive interest rates higher."
(Graphic: Freddie Mac)
However, the recent rise in interest rates dampened demand for refinancing and home purchases alike. Homeowners and buyers had rebounded when interest rates hit an all-time low of 2.65% in the first week of January.
Refinancing volumes were down 9% yoy last week, according to the Mortgage Bankers Association Index, which measures new mortgage activity. Mortgage applications to buy new homes also decreased by 12%, seasonally adjusted.
Read more: Almost Record Low Mortgage Rates: Should You Pay Out & Refinance?
While economists assume rates will continue throughout the year as the economy begins to recover from the pandemic, the upswing will not be without starts and sputters.
"While we expect higher interest rates across the board this year, we don't expect rates to rise without ever falling behind," chief economist Danielle Hale told Yahoo Money. "It's likely that we won't see all-time new lows, but it's also possible that rates could slide back in the coming weeks before they go back up."
A home for sale on December 17, 2020 in Scituate, Massachusetts. (Staff photo by Matt Stone / MediaNews Group / Boston Herald)
"You should consider a number of possible sentences"
Homeowners looking to refinance need to be willing to act quickly when interest rates reach levels that make obtaining a new home loan financially beneficial. In addition, 14.8 million qualified homeowners could cut their interest rate three-quarter points from current rates, according to Yahoo Money of Black Knight Inc., a data analysis company.
For potential buyers entering the spring season, prices are still cheap - near all-time lows, Hale said. Other factors also determine what mortgage rate a buyer receives, such as the size of the down payment, how much other debt he bears, and his creditworthiness.
Read More: Here Is The Story Of The 30 Year Fixed Mortgage Rate
"For potential buyers, today's data is a reminder of how much prices can move from week to week, so be prepared and understand what different prices mean for their monthly budget and target property price," said Hale. "You should consider a number of possible tariffs so that you know how sensitive you are to changing tariffs and how much leeway you want to leave in your monthly budget and target house price."
Real estate agent Rebecca Van Camp will post a "Sold" poster on her sign outside a home in Meridian, Idaho on Wednesday, October 21, 2020. (Darin Oswald / The Statesman of Idaho / Tribune News Service via Getty Images)
Hale's forecast for mortgage rates remains unchanged. The interest rates for the year average 3% and end at 3.4% through 2021. This is almost the same as it was a year ago today.
According to Francesca Ortegren, data scientist at Clever Real Estate, the biggest challenge for buyers is actually finding a home to buy. In late January, the number of properties for sale fell 25.7% year over year - a record decline - to a historic low of 1.04 million units, according to the National Association of Realtors.
"The biggest obstacle for buyers this year will be competition from other buyers," said Ortegren. "We continue to see fewer houses in the market than average during the pandemic and expect this to continue through spring."
The Yahoo Money sister site Cashay has a weekly newsletter.
Janna is an editor for Yahoo Money and Cashay. Follow her on Twitter @JannaHerron.
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