Inflation Pushes Mortgage Rates to Pre-Pandemic Highs — How Has Consumer Sentiment Been Impacted?

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Mortgage rates rose again, reaching their  highest level since January 2020, before the pandemic rocked financial markets, Bloomberg reported.

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The 30-year fixed-rate mortgage averaged 3.69% with an average 0.8 point for the week ending February 10, 2022, up from last week when it averaged 3.55%, according to a Freddie Mac press release. A year ago at this time, the 30-year FRM averaged 2.73%.

In addition, Freddie Mac said that the 15-year fixed-rate mortgage averaged 2.93% with an average 0.8 point, up from last week when it averaged 2.77%, compared to a year ago at this time, the 15-year FRM averaged 2.19%, according to the release.

As for the 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM), it averaged 2.80% with an average 0.3 point, up from last week when it averaged 2.71%, while a year ago at this time, the 5-year ARM averaged 2.79%.

“The normalization of the economy continues as mortgage rates jumped to the highest level since the emergence of the pandemic,” Sam Khater, Freddie Mac’s Chief Economist, said in the release. “Rate increases are expected to continue due to a strong labor market and high inflation, which likely will have an adverse impact on homebuyer demand.”

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This week’s rate increase follows a surge in the 10-year Treasury which passed 1.9% this week, the highest point since November 2019,  George Ratiu, Realtor.com’s manager of economic research, told CNN.

“The stronger-than-expected employment report for January, and rising inflation, which accelerated further in January, are keeping investors bullish on the economy,” Ratiu told CNN.

He added, however, that as rates have risen, mortgage applications to purchase a home have declined in the last week, as many first-time buyers were priced out of the market. In addition, the number of homes available to buy is at a record low and home prices are still rising at more than 10% over last year, Ratiu told CNN.

“At the current rate, they are paying $270 more on their monthly mortgage payment compared with a year ago, adding over $3,260 to the yearly payments,” he told CNN. “The benefits that ultra-low interest rates provided over the last two years are wearing off and affordability is becoming a huge hurdle for many buyers.” 

A new Fannie Mae Home Purchase Sentiment Index, released Feb. 7, showed that the housing sentiment drifted lower- especially among younger generations in January.

The index decreased 2.4 points to 71.8 in January, its lowest level since May 2020, as affordability constraints continue to weigh on the housing market, according to the Fannie Mae Index.

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In January, a survey record-low 25% of respondents reported that it’s a good time to buy a home, compared to the 69% of consumers who reported that it’s a good time to sell. Consumers also reported greater concerns about job stability and the future path of mortgage rates. Year over year, the full index is down 5.9 points, according to Fannie Mae.

“Younger consumers — more so than other groups — expect home prices to rise even further, and they also reported a greater sense of macroeconomic pessimism,” Doug Duncan, Fannie Mae Senior Vice President and Chief Economist, said in a press release on Feb. 7. ” Additionally, while the younger respondents are typically the most optimistic about their future finances, this month their sense of optimism around their personal financial situation declined. All of this points back to the current lack of affordable housing stock, as younger generations appear to be feeling it particularly acutely and, absent an uptick in supply, may have their homeownership aspirations delayed.

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About the Author

Yaël Bizouati-Kennedy is a full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.
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