Economists' Outlook

Housing stats and analysis from NAR's research experts.

Instant Reaction: Mortgage rates, March 18, 2021

Mortgage rates continue their upward trend. Freddie Mac reported today that the average rate on the 30-year fixed rate home loan ticked up to 3.09% from 3.05% last week. However, a year after the pandemic struck our country, mortgage rates are still hovering into record lows around 3%. Even though mortgage rates will likely continue to rise later this year, with the Fed keeping interest rates low, mortgage rates will remain favorable for would-be homebuyers and owners to refinance.

The recent increase in mortgage rates doesn’t seem to have had any impact on homebuyers. Home purchase mortgage activity continues to be strong. Sales of both new and existing-homes have been running at 14-year highs. In the meantime, housing is more affordable than a year earlier. While mortgage rates are historically low, people’s income is higher due to the stimulus packages. Specifically, median family income jumped by 9.4% while the monthly mortgage payment increased 1.8% in January from one year ago.

However, home prices continue to rise, offsetting the benefits of the low mortgage rates. With significantly fewer homes available for sale, the imbalance between housing supply and demand may exacerbate further as we are entering the spring season. In the meantime, homebuilders report as their most urgent concern the high costs and delays of building materials due to supply chain disruptions. For instance, lumber prices continue to soar, creating additional hurdles to homebuilders to deliver more homes in the market. From the consumer perspective, these shortages in supply also have an impact on owners who want to improve where they live now with delays and additional costs. Following lumber, windows and doors seem to be the hardest items to find. Furniture and appliances are also facing the same supply shortage due to manufacturing disruptions. With historically low mortgage rates, it may make more sense for many existing owners to sell than improve their home and buy a new or fully renovated home. This also means that the supply of homes needs to grow so that additional demand would make sense. Housing starts may have cooled off in February but it seems that this was mostly due to weather effects. Expect construction to wrap up in the following months.