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Mortgage rates in the US: highest level in over a decade

The mortgage rate has reached unprecedented levels in the last 10 years. Understand what brought us here and what we can expect for the future of the real estate market.

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What you need to know about the mortgage rate hike

House inside supermarket cart (highest mortgage rates)
Understand what’s behind the mortgage rate hike. Source: Pixabay

In fact, higher mortgage rates are causing many people to put off the dream of home ownership. Thus, the interest rate used in the purchase of houses and apartments via mortgage is, historically, one of the lowest on the market.

However, in recent weeks the mortgage rate has followed the upward movement of all other interest rates on the market. Thus, according to Freddie Mac, this index hit a record and reached its highest value in 12 years in April this year.

Thus, 30-year mortgage loans at a fixed rate reached 5.11%, almost double the value of the same month last year, 2.97%. For some analysts, this movement represents the end of the historic low observed since the end of the great global crisis of 2008 and 2009.

In response to this effect, demand in some sectors is showing the first signs of falling. However, this trend is not followed at all levels of this market. According to Joel Kan, associate vice president of economic and industry forecasting for MBA in a statement, the market is still hot in the higher segments of the market.

Indeed, he understands what is behind this crisis and what experts’ expectations are for the coming weeks.

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Why are US mortgage rates so high?

Medium/high standard house with "for sale" plate
“It’s a tug of war.” Understand how experts explain the high mortgage rate in the country. Source: Pixabay

Thus, the mortgage rate is one of the main interest rates that control the purchase price of houses, apartments and real estate by mortgage. This is a very common purchase method in the United States. Through it, the buyer offers as collateral a property registered in his name for the acquisition of another property.

Usually, the payment of these properties is made in long installments, of 30 years or more. In effect, the interest charged on this purchase is the mortgage rate and is usually fixed at a fixed amount at the time of purchase. Unlike the prime rate, the mortgage rate is not set directly by the Federal Reserve (Fed).

However, this tends to follow the ups and downs of the set rate for the 10-year Treasury. In a broader picture, the mortgage rate responds indirectly to inflation and market trends.

According to Greg McBride, chief financial analyst at Bankrate, the current upward movement is a result of the opposing movements of these two factors. “It’s like a tug of war,” says the market analyst. On the one hand, there is inflation, which raises prices in general, including interest rates.

As we face a moment of historic inflation, at 8.5%, the highest in 40 years, it is normal that the mortgage rate also rises. On the other hand, there is a slowdown in the economy, which makes this index tend to fall.

Added to these factors is the action of the Fed, which is trying to control inflation in the country and the moment of uncertainty generated by the Ukrainian-Russian conflict. In response, we see higher mortgage rates and their swing at higher levels.

Will mortgage interest rates go down in 2022?

House with "sold" sign
What can we expect from the mortgage rate for the future? How to guarantee lower rates even at a time of high interest rates? Source: Pixabay

While we are facing historic highs in mortgage rates, this move did not surprise some experts. According to Brett Bivenour, chief technology officer at Nationwide Mortgage Bankers, this move was expected. However, what was surprising was the speed with which this index reached values ​​never seen before in the decade.

The increase in this rate, together with the increase in house prices and the decrease in purchasing power, has already damaged the financial health of some families. However, what can we expect for the future? Should those looking for lower rates put off the dream of home ownership for now?

According to George Ratiu, manager of economic research at Realtor.com, expectations for a lower mortgage rate aren’t too high. In fact, the Fed is already starting to implement its inflation control plan. That means the economy will remain sluggish, which means higher mortgage rates will stay in that state longer.

Thus, Ratiu expects this rate to continue rising in the coming weeks. This opinion is in line with the result of a consultation carried out by Bankrate with the mortgage specialist. Among these, the expectation is that rates will rise again in the near future.

However, this does not mean the end of the dream for those who wish to acquire their property now. However, experts recommend that you pay close attention to your credit score. The higher, the better the rates and payment terms you will have access to.

Not sure how to improve your credit score? Then click on the link below and read a full article on the topic.

Report credit score banking borrowing application risk form

What are credit scores? An uncomplicated guide

Do you know what credit scores are? Learn what the impact of this number on your financial life is and how to improve it!

About the author  /  José Gonçalo

I started reading about finance only to find better options than savings. Since then, I have never stopped studying finance, and I believe that writing about it is the best way to help individuals feel fulfilled and have a healthy financial life. Today, I balance finance and medical school studies.

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