Highest Mortgage Rates in 8 Months – What to Expect After Last Week’s Fed Announcement

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Mortgage rates rose again last week, coinciding with statements by Federal Reserve Chairman Jerome Powell confirming what pundits have been predicting all year: that rates would rise as the economy recovers next year.

The average 30-year fixed mortgage rate rose 0.04% last week to 3.28%. This is the second consecutive rate increase and the highest rate average we have seen in eight months.

The latest increase is consistent with Powell’s announcement last week that the Fed plans to wind down its bond-buying program since “the economy no longer needs increasing policy support.”

While pundits generally expected rates to rise throughout the year, at least one pundit offered a specific new prediction last week. The 30-year fixed mortgage rate will drop to 3.5% next year, according to Lawrence Yun, chief economist and senior vice president of research for the National Association of Realtors (NAR). Yun made his prediction during the presentation of NAR’s year-end real estate forecast summit.

Despite rate increases expected next year, there’s still the potential for rates to drop amid the impact of Omicron and other COVID-19 variants, Powell acknowledged last week. “The increase in COVID cases in recent weeks, as well as the emergence of the Omicron variant, pose risks to the outlook.”

Here is an overview of the rate situation, where it is now and what we can expect in the future.


Last week’s average mortgage rate is based on mortgage rate information provided by national lenders to Bankrate.com, which, like NextAdvisor, is owned by Red Ventures.

Mortgage rates and the housing market: what to expect

Experts have predicted that we will see an increase in rates and volatility in December, and this is largely the case. Last week’s increase in the average 30-year fixed mortgage rate from 3.24% to 3.28% hit the highest level in eight months.

Officials at last Wednesday’s Federal Reserve meeting said there could be as many as three rate hikes in 2022. Even before the Fed’s announcements last week, consumers were expecting rates rise over the next 12 months, according to a recent Fannie Mae housing study. How fast or slow they grow will likely depend on the health of the economy.

Growing concerns about rising inflation and the Omicron variant of COVID-19 drove rates up and down. The latest consumer price index showed the biggest spike in inflation in 39 years.

Mortgage rates are expected to experience continued volatility but remain historically low, Zillow economist Nicole Bachaud told us recently. The offsetting factors of rising COVID cases and rising inflation will contribute to the swings we’ll see in mortgage rates going forward, Bachaud said.

Although current rates are not as low as the sub-3% we saw earlier this year, they are still very low from a historical perspective.

Mortgage rates: retrospective

The average 30-year fixed mortgage rate was around 3% a year ago. That’s 0.28 percentage points lower than last week’s average. Two years ago they were at 3.93%, which is significantly higher than they are today.

The sharp drop in rates this year was largely the result of the economic effects of the COVID-19 pandemic and the Federal Reserve’s reactive policies in 2020. According to the US Bureau of Labor Statistics (BLS), nearly 9 million workers said they lost their jobs in 2020. In an effort to avoid widespread foreclosures, the Federal Reserve has implemented policies aimed at lowering interest rates to make housing more affordable. Lower interest rates can help keep home buying affordable and encourage homeowners to refinance to reduce monthly mortgage payments.

What Rate and Housing Market Forecasts Mean for Borrowers

Here’s what future speculation in the housing market and expected rate hikes mean for potential borrowers.

home buyers

Experts believe that the housing market is starting to cool. But with house prices rising over the past year, you might need a larger down payment to stay within the affordable range. While a low mortgage rate can help offset payment expenses, a large home loan can overshadow the potential savings of a low mortgage rate.

Some experts advise delaying a home purchase until the market cools further. Others say don’t time the market and buy when the time is right for your personal situation. With the recent volatility in rates over the past few weeks, timing is nearly impossible. “It’s hard to predict what rates will do in the future, just like the stock market,” John Bergquist, managing member of Lift Financial in South Jordan, Utah, told us. “We are currently close to historic lows. With that in mind, I wouldn’t suggest waiting and trying to time the market.

Whatever your decision, housing experts recommend planning ahead by:

  1. Know how much house you can afford
  2. Stick to a home buying budget
  3. Save for a sufficient down payment
  4. Check an experienced real estate agent you are comfortable with
  5. Don’t rush into buying a house

Existing owners

Now can be a good time for a refinance. Homeowners who are on the fence about refinancing may want to consider it. After the Fed’s most recent announcement, mortgage rates should continue their long-term upward trajectory. It may be worth doing the math with a few lenders to see if you qualify. Generally, if you can get a new mortgage rate 0.75% to 1% lower than your current rate, you’ll save.

A rate and term refinance could go a long way in reducing not only your monthly payments, but also the amount of interest paid over the life of the loan. As home values ​​across the country have increased over the past year, you can also take advantage of your home’s increased equity by doing a cash refinance. Cash-in refinances are growing in popularity – rising from 37% to 49% of total refinances in the first half of this year, according to mortgage data analytics firm Black Knight. A cash refi can be a useful tool to help pay off high-interest debt, pay school fees, or finance a home improvement project.

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