Mortgage Rates Hit Highest Levels Since Spring 2020

U.S. mortgage rates this week rose to their highest levels since May 2020, driving up the costs associated with home buying at a time when home-sales prices are already near record highs.

The average rate for a 30-year fixed-rate loan was 3.22%, up from 3.11% last week, according to mortgage finance giant Freddie Mac. A year ago, mortgage rates stood at 2.65%.

Ultralow interest rates have been a major force in the housing boom of the last two years. Households that kept their jobs and saved money during the pandemic seized on low borrowing costs to buy bigger homes that could accommodate working or schooling from home. Second-home purchases and investor demand for rental properties also surged.

With the number of homes for sale well below normal levels, buyers have competed in bidding wars, pushing prices to new highs. The median existing-home price rose 13.9% in November from a year earlier to $353,900, according to the National Association of Realtors. That month, the median sales price for newly built homes hit an all-time high.

Mortgage rates are still low by historical standards, and with strong buyer demand for homes, housing economists don’t anticipate an immediate or significant pullback in home sales. Existing-home sales rose in November to the highest seasonally adjusted annual rate since last January, and 2021 was on track to be the strongest year in home sales since 2006.

But with the Federal Reserve on course to raise short-term interest rates this year, mortgage rates are likely to accompany them higher, making home affordability an even greater challenge.

“Rates are really the biggest risk to the market,” said Ivy Zelman, chief executive of real-estate research and advisory firm Zelman & Associates.

A 3.22% rate on a $300,000 loan would create a monthly payment of about $1,300, according to

LendingTree Inc.,

an online loan information site. At 2.65%, where the average mortgage rate stood a year ago, the monthly payment would be $1,209. (Both figures exclude taxes and insurance).

If interest rates continue to rise, existing homeowners are likely to be less eager to sell their current homes and buy new ones if they have already locked in low rates.

“I think that a 4% mortgage rate would kill the housing market,” Ms. Zelman said. “So many people are locked in below that rate, and that’s really what matters.”

NAR forecasts the 30-year fixed mortgage rate to hit 3.7% at the end of 2022, a borrowing rate that the industry group’s economists believe is still low enough to keep the housing boom going.

“Housing demand is expected to remain robust this year,” said Nadia Evangelou, senior economist and director of forecasting at NAR. “Even though the housing market will likely settle down, it will still outperform compared to pre-pandemic.”

Rising rates can also take the steam out of a refinancing boom that has boosted mortgage lenders since spring 2020. When rates go up, fewer homeowners can lower their monthly payments by refinancing.

Mortgage rates in recent days have followed the steep climb in U.S. Treasury yields, which set a floor on borrowing costs across the economy. The yield on the benchmark 10-year U.S. Treasury note settled Thursday at 1.733%, according to Tradeweb, up from 1.496% last Friday.

Yields started rising sharply on Monday, a sign that investors were making fresh bets on Federal Reserve rate increases, reflecting expectations that the U.S. economy will continue expanding and that officials will move to bring inflation down. Yields got an extra boost Wednesday, when minutes from the Fed’s December meeting showed officials were eyeing a faster timetable for raising rates this year.

Fed-funds futures showed Thursday that investors think there is a 75% chance the Fed will raise rates by its March meeting. They showed a near 50% chance that the central bank will raise rates by at least four quarter-percentage-point increments this year.

Treasury yields could have room to rise given that they are still based on expectations the Fed won’t raise rates as high as officials have indicated they think is likely, analysts and portfolio managers said.

Many investors and analysts are skeptical that the Fed will be able to raise rates to very high levels. A report by Bank of America analysts last year concluded that, given the amount of debt currently in the economy, the 10-year yield could stay below 2.5% and still result in the same total debt costs as 2018, when the yield exceeded 3%.

While mortgage rates remain near record lows, the decline in refinancings is likely to hit nonbank mortgage lenders harder than their big-bank counterparts, which report fourth-quarter earnings starting next week. Since the 2008 financial crisis, banks have stepped away from the mortgage business.

Americans borrowed a record $1.61 trillion to buy homes in 2021, according to estimates by the Mortgage Bankers Association, up from $1.48 trillion in 2020.

Write to Nicole Friedman at, Orla McCaffrey at and Sam Goldfarb at

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