Mortgage rates resumed their upward trek after falling for the last three weeks. According to Freddie Mac, the 30-year fixed mortgage rate rose to 5.23% from 5.09% the previous week. Ahead of May’s inflation reading, investors are concerned about inflation and the impact of an upcoming half-percentage-point rate hike from the Federal Reserve next week.
Nevertheless, the upcoming rate hike will likely have a smaller impact on mortgage rates this time. When the Federal Reserve raised its short-term interest rates in March, mortgage rates surged about 80 basis points in the next following three weeks. As a result, the 30-year fixed mortgage rate rose from 3.85% to 4.67% by the end of March. However, when the Federal Reserve raised its interest rates again more aggressively in May, mortgage rates increased by less than 20 basis points, and then rates fell to 5.10% by the end of May. Thus, the data shows that the effect of the Fed’s rate hike on mortgage rates was smaller in May than in March. It seems that mortgage rates have already priced in some of the effects of the upcoming Fed’s rate hikes.
Although mortgage rates will continue to rise in 2022, don’t expect to see the same sharp increases that the market experienced in March and April. Mortgage rates will likely average 5.6%-5.7% by late 2022.