Bank loan

Fed rate hike and war could push mortgage rates to 5%

The double stranglehold of creeping 8% inflation and concerns over the Russian-Ukrainian war are straining consumer wallets.

21 March 22 – If you’re buying or refinancing a home and received a mortgage rate estimate before March 14, you’re dealing with a relic of a bygone era.

The benchmark 30-year average fixed-rate home loan has moved from the mid-3% range into the stratosphere, with some Chicago lenders charging between 4.375 and 4.625% as of March 17.

Freddie Mac’s Core Mortgage Market Survey reported on March 17 that the benchmark national average for 30-year fixed home loans was 4.16%, up from 3.85% a week earlier. A year ago, the popular 30-year fixed mortgage averaged 3.09%.

“The rate difference has been night and day since November,” noted Jeremy Rose, vice president of guaranteed rate mortgages in Chicago. “The cost of money is rising. It’s shock theatre.

Sam Khater

“The 30-year fixed rate mortgage topped 4% for the first time since May 2019,” said Sam Khater (left), chief economist at Freddie Mac. “With the Federal Reserve raising short-term rates and signaling further hikes, mortgage rates should continue to rise in 2022.”

While demand for home purchases has moderated, Khater said “it remains competitive due to low existing inventory, suggesting strong pressures on home prices will continue into the buying season. houses in the spring”.

On March 17, Freddie Mac reported that 15-year fixed mortgages averaged 3.39%, down from 3.09% a week earlier. A year ago, 15-year fixed loans averaged 2.40%.

As the mortgage rate roller coaster accelerates towards 5% after the Federal Reserve’s 0.25% rate hike on March 16, the twin grip of runaway 8% inflation and concerns over the Russian-Ukrainian war strain consumers’ wallets.

As a result, the record home loan transactions in the upper 2% range that have kept the housing market booming for the past two years are now a faded dream.

The Fed’s short-term interest rate hike is the first increase since 2018. Economists say projections released by the Federal Open Markets Committee signal the likelihood of the Fed raising rates seven more times this year, which would push up rates by 1.75% at the end of the year.

On March 17, the 10-year Treasury rate – the gauge economists use to forecast 30-year fixed mortgage interest – rose from 2.15% to 2.19%.

This means that benchmark mortgage rates of over 5% are likely on the horizon, especially for borrowers who have a FICO score below 740. If you have a poor credit score of 650 points, expect pay an exorbitant amount of 5.25 to 5.5. percent today for a 30-year fixed mortgage, lenders said.

The Freddie Mac survey focuses on conventional, conforming, fully amortized home purchase loans for borrowers with a 20% down payment and excellent credit.

Photo courtesy of Don DeBat

As mortgage rates floated near or below the 3% range for most of 2021, thousands of Chicago-area homeowners refinanced their loans. Those who sat on the dock not only missed the boat, but the boat has now sunk in Titanic’s deep waters.

The Fed is facing an economic balancing act – the worst since the early 1990s. If the Fed changes too quickly, the central bank could disrupt markets and tip the economy into a deep recession, experts say.

The big worry is the Russian invasion of Ukraine which is driving up the cost of fuel, food and metals. This makes economists fear a 1970-style model stagflation this would create threats to prices, growth and the stability of financial markets.

Earlier, economists had predicted that the target federal funds rate would likely see three 25 basis point interest hikes in 2022 and three more similar hikes in 2023.

It now appears that the 5% level could be breached in early May at the next meeting of the Fed’s Open Market Committee. If the Fed raises rates six or seven more times in 2022, mortgage rates could easily reach 5.5 or 6% by the end of the year.

Thirty-year fixed mortgage interest rates ended 2020 at a low of 2.65%, the lowest level in the history of the Freddie Mac Survey, which began in 1971. Home loan rates have set new records 16 times in 2020, and refinanced tens of thousands of homeowners.

However, fast-moving Chicago-area borrowers still have a slim chance of locking in subsequent bargain rates beginning March 17, RateSeeker reports.

• Hegewisch’s First Savings Bank quoted 3.49% on 30-year loans and 2.85% on 15-year mortgages with a 20% down payment and loan fees of $615.

• Liberty Bank in Chicago quoted 3.564% on a 30-year loan and 2.75% on a 15-year mortgage with 20% down payment and loan fees of $646.

• Gateway Capital Mortgage in Chicago quoted 3.8% on 30-year mortgages and 2.875% on 15-year mortgages with a 3% down payment and loan fees of $595.