Rate Outlook

When we last delivered our “Rate Update,” the environment was ultra-low rates. Fast-forward a few months, and the 30-year fixed-rate mortgage has jumped to 3.09% in mid-March from 2.65% in mid-January according to Freddie Mac's survey.

What propelled rates higher? One of the main culprits was the specter of rising inflation fueled by a jump in commodity prices, especially lumber. Food prices globally have risen by 2.4% in February from January, while food prices in the U.S. rose 3% in 2020, double the annual rate of inflation as measured by the Core PCE (1.5%). The price for a barrel of West Texas Intermediate oil has gone from as low as -$40/barrel in April of 2020 to the recent high of $68.

The Fed has also had a hand in the recent rise in rates by letting inflation run hotter and taking a sort of laid-back approach to higher costs.  At the same time, that 10-year break-even rate, a key measure of inflation expectations, is at its highest level since 2014.

Throw in an improving economy, a push for more vaccines, and COVID-19 loosening its grip, and the path of least resistance for rates looks to be higher. But to put it in perspective, even if the 30-year fixed were to rise to 3.5%, it is still historically low. The problem is that many would-be young home buyers only know low rates.

When educating buyers about the American dream of owning a home, it's important to note that home-borrowing costs remain low, and it's still a good time to buy, sell, or refinance. Yes, rates may creep higher, but so should future wages. Also, homeownership in the long run sees price appreciation and has been a good investment.

Bottom line: It's always a good time to purchase a home, but with rates and inventories low, it is still a great time to jump into homeownership.