Economists' Outlook

Housing stats and analysis from NAR's research experts.

Instant Reaction: Mortgage Rates, January 27, 2022

"Mortgage rates didn't change much this week after moving upwards for the last 5 straight weeks. The 30-year fixed mortgage rate fell to 3.55% from 3.56% the previous week.

In the meantime, the unemployment rate has dropped below 4%, meaning that the jobless rate is very close to the pre-pandemic level (3.5%). In addition, inflation soared to its fastest pace in the last four decades. 

As a result, the Fed recently announced that they may raise short-term interest rates sooner than expected. How will this affect consumers and homebuyers? First of all, let's clarify that the Fed doesn't set mortgage rates. The short-term interest rate that the Fed will likely raise in March is the rate at which banks borrow and lend to one another. While this is not the rate that consumers pay, a higher rate for banks tends to make borrowing more expensive for consumers, eventually affecting long-term interest rates (such as the 10-year Treasury bond). As mortgage rates typically follow the trend of the 10-year Treasury yield, the rate on the conventional 30-year mortgage also tends to rise. Thus, the Fed's actions have a ripple effect. Keep in mind that the Fed's ultimate goal is to control elevated inflation by slowing down consumption.

Although mortgage rates are higher than a year earlier, they are still near historic lows. While mortgage rates will likely rise even further later this year as the Fed will raise interest rates, this increase in mortgage rates will be mitigated by lower inflation. NAR forecasts mortgage rates to average 3.9% at the end of the year."