A rapidly growing economy is usually accompanied by rising interest rates. As consumers and businesses spend more, prices go up. As prices move upward, lenders charge higher interest rates.
The economy is expected to continue expanding this year as more Americans get vaccinated against COVID-19 and resume dressing up, traveling, and patronizing restaurants, bars, sporting events and shows. As Miranda Lambert sings about flush times in "Platinum," "My heels and my hotel, they just got taller."
I expect immunity euphoria to boost economic activity in the second quarter of the year, starting in April and accelerating in May and June. That means mortgage rates might rise through the spring homebuying season and into summer.
If my April forecast turns out wrong and mortgage rates fall, it will likely be because progress in the fight against COVID-19 has slowed. If vaccine-evading variants spread, forcing tightening of social restrictions, that would slow economic growth.
In March, I predicted that mortgage rates would continue to climb, but more slowly than they had risen in the second half of February. I said most of the increase in rates would happen in the first half of March, and that’s what we saw.
The average rate on the 30-year fixed went up 13 basis points from March 1 to March 16, compared with a 25-basis-point increase in the second half of February.
Looking at the entire month, the average 30-year rate was four basis points higher on March 31 than on March 1.
The average rate on the 30-year fixed rose to 3.13% APR in March, up from 2.89% in February.
Rates rose in the context of an economy whose prospects are improving: The Federal Reserve met in the middle of March and issued a more optimistic economic forecast for 2021 than it had issued in December. The February existing home sales report showed that the median price of existing homes rose 15.8% in 12 months, and more homes would have been sold if more had been for sale.
March's increase in mortgage rates lowered the amount buyers could borrow to reach the same monthly payment compared with a month earlier. The average loan amount was $324,800 in the week ending March 26, according to the Mortgage Bankers Association. That yields a principal-and-interest payment of $1,392 at March's average rate of 3.13% for the 30-year mortgage. Generously rounding that up to a payment target of $1,500 a month, March's rate reduced borrowing power by around $10,900.
This article was written by NerdWallet.
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