Mortgage rates topped 3% for the first time since July

Janna Herron
·Editor
·3 min read

Mortgage rates topped 3% for the first time in eight months just as the home-buying season gets underway.

The rate on the 30-year fixed mortgage increased to 3.02% this week, up from 2.97% the previous week, according to Freddie Mac, a government-sponsored agency that backs millions of mortgages. That was the first time the rate exceeded 3% since the third week in July and the highest level since the first full week in July, when the rate was 3.03%.

Read more: Mortgage rates near all-time lows: Is it time to refinance?

Expectations of an improving economic picture have been driving rates higher. Rates, which hit an all-time low of 2.65% in the third week of January, will likely push higher the rest of the year.

"With the availability of COVID vaccines ramping up and the proposed House stimulus pointing toward potentially stronger consumer spending, investors are turning more bullish on the economy, and retreating from the bond market," said George Ratiu, a senior economist at Realtor.com. "The shift is sending bond yields higher, signaling that mortgage rates are also going to rise."

(Graphic: Freddie Mac)
(Graphic: Freddie Mac)

'Creating additional challenges' for homebuyers

That will put more pressure on affordability and other obstacles homebuyers are facing this spring.

"The upward move in rates is creating additional challenges in a market that has seen available inventory shrink to record-low levels and prices jump by double-digit rates for over six months," said Ratiu, noting that 1-in-5 buyers have spent more than a year looking for a home.

Read more: Near record low mortgage rates: Should you cash out and refinance?

At the end of January, the number of homes for sale dropped by 25.7% year over year — a record decline — to a historic low of 1.04 million units, according to the National Association of Realtors. At the same time, home prices grew at the quickest pace in eight years in December, according to latest data available.

'Taking the wind out of the refinance activity'

Home For Sale Real Estate Sign in Front of Beautiful New House.
Photo: Getty Creative

Homeowners, too, are seeing a shrinking window for refinancing.

"The sharp jump in interest rates over the past few weeks is taking the wind out of the refinance activity," Ratiu said. "For homeowners who may still have mortgages with interest rates at 3.75% or above, there may still be time to benefit from the current rates."

Read more: Here's the history of the 30-year fixed mortgage rate

About 12.96 million qualified homeowners could shave their interest rate by three-quarters of a point at the current rate, saving a combined $3.7 billion monthly, according to figures provided to Yahoo Money from Black Knight Inc., a data analytics company.

The calculus can be even more complicated given the new refinancing fee from Fannie Mae and Freddie Mac that went into effect in December, Ratiu said.

The historic lows for mortgage rates seen in January likely won't return as long as the economy and pandemic improve as expected, Ratiu said, noting that Realtor.com’s forecast calls for rates to average 3.2% this year, while ending at 3.4% by December.

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Janna is an editor for Yahoo Money and Cashay. Follow her on Twitter @JannaHerron.

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