Russia, Ukraine, interest rates: Economist answers burning spring market questions

Over the past several weeks I’ve gotten a lot of messages wanting me to discuss the spike in mortgage rates that followed comments by the Federal Reserve, but also asking me if there will be any impacts to the housing market following Russia’s invasion of Ukraine.

This is clearly a hot topic right now, especially as we head into the spring market, so today we are going to take a look at how these events have impacted mortgage rates, but also look at how this may have changed my mortgage rate outlook for 2022 — so let’s get to it.

Where have mortgage rates been and where are they headed next?

Here is a chart that shows how rates have moved over the past two years or so using Freddie Mac’s average weekly rate for a conforming 30-year mortgage.

Rates were falling in early 2020, but when COVID-19 was announced as a pandemic they spiked. Almost immediately the Fed announced their support for the economy by implementing a broad array of actions to keep credit flowing and limit the economic damage that the pandemic would likely create.

Part of that support included large purchases of U.S. government and mortgage-backed securities.

With the Fed as a major buyer of mortgage securities, rates dropped ending 2020 at a level never seen in the more than 50-years that the 30-year mortgage has been with us.

In early 2021 rates started to rise again as the country became more confident that the pandemic was coming under control, but all that changed with the rise of the Delta variant of COVID-19 which pushed rates lower through mid-summer.

As we again started to believe that COVID was under control – and a booster shot became available – you’ll see rates resumed their upward trend in August.

What has everyone worried today is this spike that really took off at the end of last year.

Will that last big spike in interest rates continue to move upward?

A jump of almost a full percentage point in just eight short weeks understandably has a lot of agents, buyers and sellers concerned about what impacts this might have on what has been a remarkably buoyant housing market.

Now, rates rising so quickly was unusual, but not unprecedented. If you really wanted to be scared, I’d regale you with stories from 1980 when mortgage rates jumped by over 3.5% in less than eight weeks.

Anyway, before we really dig into this topic, some of you may be thinking to yourselves that my numbers have to be wrong because they differ from the rates you have been looking at but this is due to the fact that the Freddie Mac survey methodology is different from other rate surveys but, even though their rates may not match the ones you’ve been seeing from other data providers, the trend is still consistent.

Can we just blame this on the Federal Reserve?