January 25th, 2021 9:04 PM by Regina Rickles, NMLS# 222362
The short answer is that mortgage rates are going up because the economy is starting to have a more positive outlook on post-COVID recovery.
Coronavirus has been the major force keeping rates low over the past year. The closer we get to widespread vaccination — and the better our economic outlook as a result — the higher rates will go.
Although the U.S. is still at a critical stage with the virus, and far from tangible recovery, we’re finally starting to see a path forward.
This is largely due to Biden’s win, as well as the Georgia runoff election in which Democrats Raphael Warnock and Jon Ossoff won Senate seats.
Current mortgage rate movements are due partly to the fluidity of the political and economic situation in the U.S., as the country prepares for a transition from the Trump administration to the Biden White House on January 20.
President-Elect Joe Biden has signaled that he wants to implement a $1.9 trillion stimulus plan to jumpstart the economy, and the Democratic wins in Georgia give him a Senate majority that will likely aid his efforts.
Although Biden’s proposed stimulus plan has drawn criticism that relief checks of even $2,000 are unlikely to do much for the economy, the aim of the plan is to ease the country’s economic burden and spur spending and growth.
Economic growth would likely raise mortgage rates as different sectors rebound.
Mortgage professional Magazine also reported that stimulus spending could increase inflation, which would drive up mortgage rates as well.
Eli Sklar, senior loan consultant with loanDepot, pointed to the Ten-Year Treasury as an indicator of an improving economy and a signal that rates will rise in the coming year.
“The Ten-Year Treasury’s price, which is a big indicator of mortgage rates, is inversely related to how the market is doing. As the market continues to do well, the Ten-Year Treasury’s value goes down because the Ten-Year Treasury is known as the safest investment,” Sklar said.
A spike in investor interest in the Ten-Year Treasury as the economy cratered last year, combined with the Federal Reserve’s commitment to keep interest rates low, drove down mortgage rates.
But, Sklar said, as the economy recovers and people regain confidence in other types of investments, the Ten-Year Treasury will decline and mortgage rates will rise once again.
Mortgage rates could continue to rise this year, particularly if the newly elected President Biden is able to enact a relief package that includes direct payments to taxpayers and other stimulus measures.
However, major housing agencies predict only a modest rise throuhout 2021, with 30-year mortgage rates staying in the high 2% or low 3% range on average.