Mortgage rates drop as Omicron variant triggers market volatility

Buyers who froze mortgage rates this week got a bit of a break as they continued to run to get ahead of upcoming long-term rate hikes.

The average rate on a 30-year mortgage fell to 3.05%, down 7 basis points from the week before, according to Freddie Mac’s latest survey of lenders.

“Market volatility resulting from the COVID-19 Omicron variant is driving mortgage rates down,” Sam Khater, chief economist at Freddie Mac, said in a statement. “As the year draws to a close, the housing market is progressing steadily. However, rates are expected to increase in 2022, which will impact buyer demand as well as refinancing activity. “

For the week ending December 23, Freddie Mac’s Weekly Primary Mortgage Market Survey reported average rates for the following loan types:

  • For 30-year fixed rate mortgages, rates were on average 3.05% with an average of 0.7 points, down from 3.12% last week, but well above the 2.66% mark of it a year ago. 30-year loan rates hit an all-time low of 2.65% in the week ending Jan. 7, 2021, according to records dating back to 1971.
  • Rates for 15-year fixed rate mortgages averaging 2.30 percent with an average of 0.7 points, down from 2.34 percent last week and above its level of 2.19 percent a year ago. The lowest 15-year loan rate was 2.10%, set the week ending August 5, 2021, according to records dating back to 1991.
  • For 5-year Treasury-indexed variable-rate hybrid mortgage (ARM), rates were on average 2.37% with an average of 0.4 points, down from its rate of 2.45% last week and remaining well below the rate of 2.79% from a year ago. 5-year ARM loan rates are still hovering above the all-time high of 2.40% set during the week ending August 5, 2021.

The survey results reflect the rates for borrowers with excellent credit who put 20 percent on a home. The average rate also takes into account average points of call. Borrowers with lower scores or different point assumptions can expect different rates.

The fall in mortgage rates follows a general upward trend that saw 30-year loan rates drop from less than 2.9% before Thanksgiving to their current levels today.

But the outlook for even higher rates has kept buyers in the hunt for homes in recent weeks, according to George Ratiu, director of economic research for realtor.com.

“The combination of rising inflation and the accelerating reduction in purchases of mortgage-backed securities by the Federal Reserve is expected to push up interest rates in 2022, thereby squeezing the budgets of many buyers,” said Ratiu in a statement. “Weekly data from Realtor.com shows prices accelerating in December as new listings slow, a likely result as many homeowners are delaying their sales plans until after the holidays.”

The reduction in the Federal Reserve’s monthly support to the U.S. economy picked up speed last week, as officials pledged to step up the pace of the reduction.

The results of Freddie Mac’s investigation were the first to be released since the Fed decided to speed up the process, and since the Omicron variant of the coronavirus really started to gain momentum in the United States.

Despite the disruption caused by Omicron, however, Fed officials appear to be more concerned about the threats that consumer price inflation poses to the economy as it recovers from the financial impacts of the pandemic.

As the economy continues to emerge from the hole, today’s still low mortgage rates should be a thing of the past.

National Association of Realtors chief economist Lawrence Yun predicts the 30-year fixed mortgage rate will be around 3.7% by the end of 2022, and Mortgage Bankers Association figures forecast also an upward change in the coming months.

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