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As interest rates inch their way up, demand for mortgages for both refinances and purchases have fallen. According to the Mortgage Bankers Association, total application volume fell 6.3% the second week of October.

Throughout the Covid-19 pandemic, low-interest rates were an artificial measure that offset skyrocketing housing prices. Now, homebuyers are left to face these steep prices without low rates to make them more affordable.

Current mortgage rates

By the end of the third week of October, the average interest rate on a 30-year fixed-rate mortgage jumped to 3.103% APR and 2.281% APR for 15-year fixed-rate mortgages. Alongside these rising rates, homebuyers are seeing home values climb. The National Association of Realtors (NAR) released data showing the median existing-home sales price at $352,800 in September. This is an increase of 13.3% year-over-year.

As severe as those data points may seem, it is a significant decrease from the 23.4% year-over-year sales price increase that we saw in June of this year. These homes include single-family homes, condos, townhomes, and co-ops. At the same time, the average time homes spent on the market sat at 17 days, when in September of 2020, houses were snatched after an average of 21 days on the market.

Mortgage rates forecast

The future of rates will depend on three pressing factors: the economy, Covid, and the Fed. If a deadlier variant of the virus wrecks more devastation on the global economy, we could expect rates to fall. Military conflict or other severe blows to the market could also be causes for lowering rates once again.

In the absence of these catastrophic events, many economists predict that interest rates will continue rising through the end of the year. The Fed will be looking to end the pandemic-era policy of keeping rates low to offset the economic impact of Covid-19. To achieve these policies, the Fed purchased billions of dollars each month of government and mortgage debt. These purchases accumulated, and the central bank had a significant pool of money to lend, causing rates to fall.

This cycle cannot last forever, and the natural market forces will eventually need to be the primary governing force. At the Fed’s policy meeting at the end of September, the central bank announced that “a moderation in the pace of asset purchases may soon be warranted.” By “moderation,” they mean that rather than cutting these debts purchases cold turkey, they will do so in manageable decreases to allow borrowers time to adjust.

Key Takeaways:

  • Low-interest rates made housing more affordable despite skyrocketing home values.

Interest rates are slowly rising and are predicted to continue rising as the economy recovers from the Covid-19 pandemic.

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