Mortgage rates: Pandemic era ‘deals’ all-but-gone

Mortgage rates rose for a third straight week to a height last seen as the pandemic was first icing the economy.

The average for a 30-year loan was 3.45%, up from 3.22% last week and the highest since March 2020, Freddie Mac said in a statement Thursday.

Rates tracked a jump in yields for the widely watched 10-year Treasuries, which climbed to levels not seen since early 2020, before the pandemic roiled financial markets. Signs point to borrowing costs rising further as the job market improves and the Federal Reserve steps up its efforts to tame inflation by increasing the rates it controls.

That would increase the burden on homebuyers who are already stretching to afford a purchase. Rates for 30-year mortgages tumbled to a record low a little more than a year ago. Cheap loans have helped fuel a housing rally that’s still running hot even as home prices soar out of reach for many Americans.

“The rise in mortgage rates so far this year has not yet affected purchase demand,” Sam Khater, Freddie Mac’s chief economist, said in the statement. “But given the fast pace of home price growth, it will likely dampen demand in the near future.”

Imagine a borrower who can afford a $2,000-a-month mortgage payment. At the January 2021 record low of 2.65%, that $2,000 payment gets a borrower $496,000. At this week’s rates, $2,000 covers a $448,000 loan — almost 10% less.

Available housing has been in short supply since long before the pandemic started, and prices have risen close to 20% in the past year. Higher mortgage rates could make it even harder for homebuyers to secure a new home.

Mortgage rates have been expected to rise this year after the Federal Reserve announced last month that it would begin dialing back its monthly bond purchases — which are intended to lower long-term rates — to slow accelerating inflation. But even with the expected three or four rate increases in 2022, the Fed’s benchmark rate would still be historically low at around 1%.

On Wednesday, the government reported that inflation spiked to 7% in December from a year earlier, the sharpest such increase in four decades. Earlier Thursday, the Labor Department reported that prices at the wholesale level surged by a record 9.7% in December from a year earlier.

There are some indications that inflation may be easing, with an index measuring prices paid to U.S. producers coming in lower than expected.

“If inflation cools off, interest rates will level,” said Keith Gumbinger, vice president at mortgage-information company HSH.com.

In addition to surging inflation, experts expect robust economic growth and the tight labor market to continue to push rates higher.

Although U.S. jobless claims climbed by 23,000 last week to 230,000, it’s still low by historic standards and the highly contagious omicron variant doesn’t appear to have triggered layoffs yet.

Bloomberg, Associated Press, and the Southern California News Group’s Jonathan Lansner contributed to this report.