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Mortgage rates jump above 3% for first time since June

Mortgage rates moved noticeably upward in the past week, as Treasury yields climbed following the Federal Reserve’s taper announcement.

The 30-year fixed-rate mortgage hit its highest point in three months, averaging 3.01% for the weekly period ending Sept. 30, according to the Freddie Mac Primary Mortgage Market Survey. The average jumped from 2.88% a week earlier. The last time the 30-year rate rose above the 3% threshold was in the final full week of June when it reached 3.02%. In the same period one year ago, the average stood at 2.88%.

“Many factors led to this increase, including the Federal Reserve communicating that it will taper its support of the capital markets, the broadening of inflation and emerging energy supply shortages, which compound other labor and materials shortages,” said Sam Khater, Freddie Mac chief economist, in a press release.

While the immediate reaction to the Fed’s taper announcement appeared muted, Treasury yields spiked in subsequent days, as did corresponding mortgage rates, with investors taking stock of activity outside the U.S.

“The strong uptick in yields was buoyed by more aggressive policy statements made by federal banks overseas and likely reflect the market collectively reconsidering the economy path forward in an environment with elevated inflation and falling COVID-19 cases,” said Matthew Speakman, Zillow economist, in a blog post.

Consumer prices rose in August by 0.3%, the slowest pace in six months, although the rate was still running 5.3% higher on a year-over-year basis. New COVID-19 cases dropped by 17.1% for the week ending Sept. 24, after steadily increasing in July and August. That slowing pace of new cases, should it continue, will lead to an environment that would eliminate downward rate pressure seen during the summer, according to Speakman.

“A continued decline would fortify the Fed’s case to tighten policy, especially if inflation remains elevated, which appears likely in the near term,” he noted.

While increased rates may cause 2021’s hot housing market to cool, it could have a beneficial effect in opening up inventory for new home buyers, who have been priced out.

“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,” Khater said.

The 15-year fixed mortgage rate average also increased over the week, rising 13 basis points to 2.28% from 2.15%. But the rate is still below the level from the same week a year ago, when it averaged 2.36%.

The 5-year Treasury-indexed adjustable-rate mortgage jumped to 2.48% from 2.43% the previous week. In the same seven-day period one year ago, the 5-year ARM was at 2.9%.

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