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Mortgage rates today: Friday, October 22, 2021
On Friday, October 22, 2021, the average interest rate on a 30-year fixed-rate mortgage jumped eight basis points to 3.103% APR. The average rate on a 15-year fixed-rate mortgage rose four basis points to 2.281% APR and the average rate on a 5/1 adjustable-rate mortgage fell three basis points to 3.206% APR, according to rates provided to NerdWallet by Zillow. The 30-year fixed-rate mortgage is 10 basis points higher compared to one week ago and 10 basis points higher than one year ago. A basis point is one one-hundredth of one percent. Rates are expressed as an annual percentage rate, or APR.
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Mortgage rates this week
Mortgage rates seesawed slightly in the week ending Oct. 21, depending on the type of loan.
The 30-year fixed-rate mortgage averaged 3.03% APR, down five basis points from the previous week's average.
The 15-year fixed-rate mortgage averaged 2.25% APR, up three basis points from the previous week's average.
The five-year adjustable-rate mortgage averaged 3.23% APR, up 1 basis point from the previous week's average.
Although mortgage rates are still relatively low, high prices and a limited number of homes for sale continue to challenge buyers, especially first-timers. However, the growth in prices has slowed in the last four months.
The median existing-home sales price was $352,800 in September, up 13.3% year-over-year, according to data released Thursday by the National Association of Realtors. That's a sizable increase, but not as eye-popping as the 23.4% year-over-year increase in June. Existing homes include single-family homes, condos, townhomes and co-ops that were owned and lived-in before going on the market.
Meanwhile, the number of unsold homes was down almost 1% from August and 13% from a year ago. Homes were typically snapped up just 17 days after they were listed for sale, the same as in August and down from 21 days in September 2020.
One bright spot for those planning to buy: Lawrence Yun, NAR's chief economist, said more homes are likely to come on the market as early as 2022, as builders increase production and mortgage forbearance programs end.
October mortgage rates forecast
I predict that mortgage rates will rise in October. There will be ups and downs day to day, but mortgage rates will be higher at the end of the month than at the beginning of the month. (That’s assuming the debt limit will be addressed in time to avoid a government default; if that doesn't happen, the economic effects could be dire.)
Mortgage rates are likely to go up because the Federal Reserve is getting ready to end a pandemic-era policy of keeping them artificially low. Here's how the low-rate policy worked: The Fed bought billions of dollars each month of government and mortgage debt. With these purchases, the central bank ensured that there would be a colossal pool of money to lend. Consequently, mortgage rates fell. The 30-year fixed-rate mortgage dived below 3% and mostly remained there for months.
The Fed's policy of asset purchases eventually has to end. After all, it would distort financial and housing markets for the government to artificially depress mortgage rates indefinitely. At the end of its Sept. 21-22 policy meeting, the central bank announced that "a moderation in the pace of asset purchases may soon be warranted."
This announcement was akin to telling your teenager, "Now that you're old enough to get a job, I might cut your allowance soon." The kid is going to become choosier about spending. Likewise, shortly after the Fed's announcement, investors became choosier about the mortgage-backed securities they buy: They demanded higher interest rates.
Translating the Fed's words into English
Let's unpack the previously quoted excerpt from the Fed's Sept. 22 statement. The full sentence reads: "If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted."
The beginning, "If progress continues broadly as expected," refers mainly to employment and wages. "Progress" means more jobs and rising incomes.
When the Fed talks about "a moderation in the pace of asset purchases," it means that when the central bank stops buying government and mortgage debt, it won't do it cold turkey. It will reduce the purchases by several billion dollars one month, then several billion more the next month, and so on, until the purchases end.
Most people interpret "may soon be warranted" as meaning these reductions are likely to begin in early November, shortly after the Fed's next regularly scheduled meeting.
Mortgage rates will probably keep rising as the reductions draw closer. Then, as the Fed reduces its subsidy of mortgage rates month by month into next spring, rates are likely to continue rising.
If the debt limit’s not raised in time, all bets are off
Rates could fall if a new, deadlier COVID variant rakes the globe, or if the United States or an ally gets involved in a military conflict, or if the financial markets are struck by some other shock.
If Congress didn't increase the debt limit and the country went into default, the effect on mortgage rates would be unpredictable. The United States has never defaulted on its debts.
If U.S. government IOUs lost value and became untradeable, the effect on financial markets could be catastrophic, but we don't know exactly what that calamity would look like. In a government default, borrowers might find it hard or impossible to get mortgages, and rates might skyrocket temporarily.
It's also possible that the executive branch would find a workaround that would spare the financial markets from turmoil.
What happened in September
At the beginning of September, I said mortgage rates had gone up in August and would continue to rise modestly in the first half of September, then level out. I wasn't right, but I wasn't wrong, either.
Instead of rising in the first half of September, mortgage rates dropped. But after the Fed meeting, they went up sharply, erased the decline from early in the month, and kept climbing.
On Sept. 1, the 30-year fixed averaged 2.886% APR in NerdWallet's daily rate survey. On Sept. 30, it averaged 3.043%. So mortgage rates went up, as I predicted — although they didn't arrive at that destination via the route I had envisioned.