Rates rise to highest level since July 2020, will that lower home prices? - Movement Mortgage Blog

What homebuyers have been feeling for months was confirmed yet again in the latest S&P CoreLogic Case-Shiller National Home Price Index Report. July 2021 was the fourth-straight month to hit a record for home price growth with a 19.7% annual gain. June’s price growth rate was 18.7% higher year-over-year. The report shows that the Southwest and West portions of the United States showed the strongest growth with all regions recording double-digit price gains.

While that number is incredibly high, it’s important to remember that this index lags by at least two months. So what you’re seeing now with regard to prices for homes when you’re shopping around will be reflected in November and December’s data. Be sure to consult a mortgage and real estate professional before assuming you would not be able to afford a home at this time.

What has been offsetting the increasing home prices are the historically low interest rates we continue to see. However, the latest Freddie Mac 30-year fixed-rate average finally jumped back above 3% this past week, hitting 3.01%, for the first time since July 2020. Freddie Mac’s analysts believe this rise in interest rates will come with a silver lining, however, noting “We expect mortgage rates to continue to rise modestly which will likely have an impact on home prices, causing them to moderate slightly after increasing over the last year.”

Each week we’ve been discussing what’s happening with the Federal Reserve and how that will affect interest rates. Last month, the Fed gave us a better indication of when we can expect to see the entity reduce its monthly purchases of bonds and mortgage-backed securities, which will more than likely cause mortgage interest rates to rise.

In the last weeks of September, we started to see the stock markets react to the Fed’s policy plans. The 10-year Treasury note yield, which is typically an indicator for where mortgage interest rates will fall, rose above 1.54% on the last Wednesday in September and hit 1.56% the day before. That’s its highest yield since June and a stark contrast to the 1.29% high just one week prior. 

The market was reacting to Fed Chairman Jerome Powell’s statement he made about inflation at the European Central Bank Forum. Powell has called the current inflation status in the economy “frustrating” and lamented that supply chain issues might cause inflation to last longer than previously thought. Powell’s frustration stems from his belief that people getting vaccinated and halting the spread of COVID-19 “remains the most important economic policy we have.” Powell also noted that he’s frustrated that supply chain issues are not getting better and “in fact at the margins apparently getting a little bit worse.”

Typically, the Fed’s target inflation rate would be about 2%. Last year, the Federal Open Market Committee made it clear that it would allow inflation to run hotter than normal in order to try and create a more controlled post-COVID economic recovery. At its September meeting, the FOMC upped its projection for 2021 core inflation and now forecasts a 3.7% rise instead of just 3%. 

Powell addressed inflation at the European forum saying, “The current inflation spike is really a consequence of supply constraints meeting very strong demand, and that is all associated with the reopening of the economy, which is a process that will have a beginning, a middle and an end.” Powell continued, saying “We see those things resolving. It’s very difficult to say how big those effects will be in the meantime or how long they will last.”

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Movement Staff

The Market Update is a weekly commentary compiled by a group of Movement Mortgage capital markets analysts with decades of combined expertise in the financial field. Movement's staff helps take complicated economic topics and turn them into a useful, easy to understand analysis to help you make the best decisions for your financial future.