Long-Term Mortgage Rates Decline Amid Omicron Fears

By Katabella Roberts
Katabella Roberts
Katabella Roberts
Katabella Roberts is a reporter currently based in Turkey. She covers news and business for The Epoch Times, focusing primarily on the United States.
December 24, 2021 Updated: December 24, 2021

Long-term mortgage rates declined this week amid fresh fears over the effects the new Omicron coronavirus variant might have on the economy, mortgage buyer Freddie Mac reported in its Primary Mortgage Market Survey on Thursday.

Freddie Mac’s report is based on first-lien prime conventional conforming home purchase mortgages with a loan-to-value of 80 percent.

According to this week’s report, the average rate on the benchmark 30-year home loan dipped to 3.05 percent this week from 3.12 percent last week. A year ago, the 30-year rate stood at 2.66 percent.

Meanwhile, the average rate on 15-year fixed-rate mortgages (FRM) fell to 2.3 percent from 2.34 percent last week. A year ago at this time, the 15-year FRM averaged 2.19 percent.

“The market volatility resulting from the COVID-19 Omicron variant is causing mortgage rates to decrease,” said Sam Khater, Freddie Mac’s chief economist. “As the year comes to a close, the housing market is proceeding steadily. However, rates are expected to increase in 2022 which will impact homebuyer demand as well as refinance activity.”

The fall in rates comes amid fresh fears that the Omicron variant, first discovered in South Africa last month, could wreak havoc with economic growth, prompting a fresh wave of lockdowns.

As of Monday, Omicron makes up at least 73 percent of new cases in the United States, according to the Centers for Disease Control and Prevention (CDC).

Elsewhere, the Federal Reserve last week announced that it would accelerate the pace of phasing out its massive $120 billion in monthly bond-buying, thus paving the way for a rise in interest rates soon.

“For consumers, the writing is on the wall that interest rates are likely to start climbing in 2022. Now is the time to be making headway on paying off high-cost credit cards, consolidating debt at lower fixed rates, and refinancing the mortgage,” Bankrate Chief Financial Analyst Greg McBride told The Epoch Times in an emailed statement.

A rise in interest rates means the cost of borrowing will go up, as will debt sustainability concerns, at a time when inflation in a number of countries is already at multi-decade highs.

The International Monetary Fund (IMF) has warned of interest rate risks with regard to the growing level of global debt after 2020 saw the largest one-year debt surge in recorded history.

Global debt reached $226 trillion in 2020 as governments ramped up stimulus spending to keep the economy afloat during the COVID-19 pandemic recession.

“Debt was already elevated going into the crisis, but now, governments must navigate a world of record-high public and private debt levels, new virus mutations, and rising inflation,” IMF officials stated in a Dec. 15 blog post.

“As interest rates rise, fiscal policy will need to adjust, especially in countries with higher debt vulnerabilities,” the IMF team wrote. “As history shows, fiscal support will become less effective when interest rates respond—that is, higher spending (or lower taxes) will have less impact on economic activity and employment and could fuel inflation pressures.”

IMF officials noted that a “significant tightening of financial conditions would heighten the pressure on the most highly indebted governments, households, and firms.”

“If the public and private sectors are forced to deleverage simultaneously, growth prospects will suffer,” they wrote while urging governments to find “the right balance between policy flexibility, nimble adjustment to changing circumstances, and commitment to credible and sustainable medium-term fiscal plans.”

Tom Ozimek contributed to this report.

Katabella Roberts is a reporter currently based in Turkey. She covers news and business for The Epoch Times, focusing primarily on the United States.