Mortgage Rates Surge. The Pandemic’s Ultralow Rates Are Over.

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Mortgage rates climbed to their highest point since March 2020, according to data released Thursday. It’s the latest sign that the pandemic’s ultralow rates are a thing of the past.

The average rate of a 30-year fixed-rate mortgage was 3.45% this week, according to

Freddie Mac

‘s Primary Mortgage Market Survey, their highest since the week ending March 26, 2020. The increase of 23 basis points from last week’s rate of 3.22% was the sharpest gain since the week ending March 19, 2020. (One basis point equals one-hundredth of a percentage point.)

The climb in mortgage rates comes as investors gear up for the Federal Reserve to increase interest rates as soon as March. The yield on 10-year Treasury notes, the main market indicator for medium- and longer-term debt, has advanced significantly since mid-December as investors have priced in a more aggressive Fed.

The possibility that the Fed will tighten monetary policy swifter than expected is pushing mortgage rates higher, Freddie Mac chief economist Sam Khater said, adding that inflation due to labor shortages and supply-chain issues also contributed.

Economists expect mortgage rates to climb even more. Freddie Mac’s most recent economic and housing market forecast, released in October, foresees the 30-year fixed rate averaging 3.4% in the first quarter of 2022, and rising to 3.7% by the fourth quarter. The National Association of Realtors estimated that mortgage rates will end the year at 3.7%. 

While rates are up significantly from their pandemic lows, they remain lower than prepandemic figures. In 2019, the average rate on a 30-year mortgage was just under 4%, according to Freddie Mac data.

Still, home affordability is top of mind as rates rise. Home prices grew at record rates in the summer of 2021 as buyers competed over a relatively low inventory of homes for sale.

Economists expect home prices to moderate this year. A National Association of Realtor consensus estimate foresees home prices rising 5.7% in 2022, a slowdown from 2021’s forecasted gain of 14.6%.

But a Redfin report published Thursday suggests that relief hasn’t yet come. The brokerage said home prices last week climbed 16% year over year to an all-time high. The number of homes for sale, meanwhile, fell to a new low, Redfin said.

Those factors combined with an increase in the number of buyers now entering the market to beat rising mortgage rates is setting the stage for “the most competitive January housing market in recorded history, Redfin chief economist Daryl Fairweather said. “I expect that by the time mortgage rates increase to 3.6%, competition will settle down quickly to levels similar to late-2018,” Fairweather added.

Mortgage rates fell to new lows during the pandemic, but have increased over the past year. This week’s average 30-year fixed rate was 66 basis points higher than the same week last year.

Rising rates could put further pressure on home buyers, Khater said. “The rise in mortgage rates so far this year has not yet affected purchase demand, but given the fast pace of home price growth, it will likely dampen demand in the near future,” he said.

Write to Shaina Mishkin at [email protected]