By Nathalie Voit

Federal homeownership mortgage lender Freddie Mac said the 30-year fixed-rate mortgage rose by nearly a quarter of a percent from last week to 3.45% in the week ending Jan. 13. This week’s average is the highest since March 2020, when the rate hit 3.65%. 

The government-sponsored mortgage lender said the increase across all mortgage loan types was driven by expectations of tighter monetary policy from the Fed. 

“The rise in mortgage rates so far this year has not yet affected purchase demand, but given the fast pace of home price growth, it will likely dampen demand in the near future,” the servicer added. 

According to the Department of Labor, consumer prices in December rose by 0.5%, enough to tip the all-items index 7.0% year-over-year. December’s annual inflation rate is the highest level since 1982 and higher than November’s previous four-decade high of 6.8%, the agency said Jan. 12.

In a confirmation hearing before the U.S. Senate Committee on Banking, Housing and Urban Affairs on Tuesday, Federal Reserve Chairman Jerome Powell signaled his intention to raise interest rates and end asset purchases to curb continued inflation, which is running close to a 40-year high. 

“We will use our tools to get inflation back,” Powell told committee members. “As we move through this year … if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year.” 

According to CNN, rising mortgage rates coupled with historically low supply and surging home prices are pushing some buyers out of the market, said George Ratiu,’s manager of economic research. 

“With prices for most consumer goods and services increasing, buyers are feeling the pinch on their wallets,” Ratiu said. “Affordability continues to be a central challenge for this year’s first-time buyers.”

At today’s prices, the average owner of a median-priced home is shelling out $219 more per month than they would have one year ago. That equates to an additional $2,600 in yearly housing costs, Ratiu said. 

The increase in mortgage rates points to the continued strength of the post-pandemic real estate market. 

Along with rising mortgage applications, the number of first-time homebuyers and low-and middle-income families applying for a government-backed loan through the Federal Housing Administration or Veterans Affairs department has increased, said Joel Kan, associate vice president of economic and industry forecasting at the Mortgage Bankers Association (MBA).

“The housing market started 2022 on a strong note,” Kan said. “MBA expects solid growth in purchase activity this year, as demographic drivers and the strong economy support housing demand. However, the strength in growth will be dependent on housing inventory growing more rapidly to meet demand.”