The housing market is about to hit another speed bump, with mortgage rates rising above 7% for the third time this year.
The 30-year fixed-rate mortgage rose from 6.95% on Monday to 7.01% on Tuesday afternoon, according to Mortgage News Daily. The 30-year was last above 7% in March, according to historical data.
(Other groups like the Mortgage Bankers Association and Freddie Mac, who also release weekly surveys of where rates are, had yet to release their reports as of Tuesday afternoon).
“We’ll probably need a few weeks of data to know if this is a blip or a trend,” Jacob Channel, senior economist at LendingTree, told MarketWatch.
Nonetheless, rates have been pretty volatile in recent weeks, he added. “Even if they don’t stay above 7%, the fact that they’re in that 6% to 7% range… it’s tough for home buyers, because home prices have remained high for most parts of the country,” Channel explained.
“The reasons for higher rates are not crystal clear — they could reflect bond market jitters about the unresolved debt ceiling deadline approaching as soon as next week, or perhaps a growing concern that the Fed will opt to keep raising rates in its fight against inflation,” Jeff Tucker, senior economist at Zillow
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told MarketWatch.
“Whatever the source, these higher rates are a difficult pill for buyers to swallow, and they give homeowners all the more reason to sit tight and avoid listing their homes,” he added.
Many Americans feel despondent about the housing market. The number of people who think it’s a good time to buy a home has hit a 45-year low.
Higher rates have added an average of $121 to monthly mortgage payments since last year
Higher mortgage rates translate directly into a higher cost of homeownership.
To be clear, most homeowners who have an existing 30-year fixed-rate mortgage won’t see an increase in their interest costs because they’ve already locked in a fixed rate.
But for new buyers who are in the process of getting a mortgage, owning a home is becoming more expensive: Between April 2022 and April 2023, the 30-year mortgage rate increased by an average of 1.85 percentage points across all 50 states, LendingTree said in a separate report.
That’s pushed monthly mortgage payments up nationwide by an average of $121 per month, according to LendingTree. That means the typical household is paying around $1,452 more per year in mortgage payments.
Mortgage payments differ widely, depending on the price of the home that a buyer is purchasing and where they’re buying. Rates and costs vary across states and cities and even local real-estate markets, as they’re tied to home prices.
The median monthly mortgage payment paid by homeowners in Hawaii was the highest in the nation in March, at roughly $4,400, while homeowners in West Virginia typically paid around $1,100 for their mortgage, according to the Mortgage Bankers Association.
With mortgage rates bouncing around as home prices hold steady, “people really just have to buckle in,” Channel said,
For home shoppers looking to get a lower rate, shop around, Lisa Sturtevant, chief economist at Bright MLS, told MarketWatch.
“Borrowers should really be shopping around and getting quotes from multiple lenders,” she explained, particularly because rates have been volatile over the last few months, which means that there is variation in rates and terms across lenders.
Not every lender will quote a potential buyer a 30-year mortgage at a 7% rate, Channel said. And rates could go down significantly, depending on the state of the U.S. economy — or go up sharply.
When will mortgage rates come down?
But for those waiting for rates to come down, don’t hold your breath, Sturtevant said. “In the short-term, the debt ceiling debate has created uncertainty and will likely keep rates elevated, or perhaps push them even higher,” she explained. Zillow expects rates to go up as past 8% if the U.S. defaults on its debt.
If the U.S. economy enters a recession, rates will go down, both experts explained.
Nonetheless, don’t expect rates to go back to the pandemic days of 2% and 3%, she advised. “My forecast is for the average rate on a 30-year fixed rate mortgage to be around 6% at the end of 2023,” Sturtevant said.
For as long as Freddie Mac has been publishing weekly rate data, which dates back to 1971, rates have only come very close to 2% once, Channel noted.
And if a buyer is embroiled in a bidding war right now, the best tip Sturtevant had was to get financing locked in.
Buyers could also consider offering sellers an opportunity to rent the home back to them for a period of time, she suggested. “That could be an incentive if the seller is still looking for a place to move to.”
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