Interest Rates: What You Need to Know

Over the last 30 days, interest rates have been on the rise but prospective home buyers are not slowing down! 

The Fed is expected to raise interest rates further, possibly by as much as a half of a percentage point!  So… how will this affect the housing market? The 30-year fixed-rate mortgage averaged 5.1% for the week ending April 28, according to data released by Freddie Mac. The mortgage rates had not surpassed 5% since 2011.  This is an increase of 1.25% since March 3, when rates were sitting at 3.76%.  

This is IMPORTANT. If you have been pre-approved in the last 30-60 days, please reach out to your preferred lender and check your rates.  The mortgage payment you thought you were going to be paying, has more than likely increased.  This allows you time to adjust and  look for homes that make sense for your budget.

Raising rates is designed to help lower the demand for mortgages, by making them more expensive for prospective homebuyers.  The question that remains is while rate hikes appear to be working to lower mortgage applications, will this have an impact on soaring home prices?

According to Nadia Eveangelou, senior economist and director of forecasting at the National Association of Realtors (NAR), the answer is no.  “We expect home prices to keep rising. We [would normally] expect higher mortgage rates to lower housing prices, but I don’t see that happening—we will see lower demand, but not necessarily lower prices.”

The most recent data for both pending home sales and mortgage applications show a weakening demand from home buyers. The combination of high prices and high interest rates have made purchasing a home significantly less affordable, and it’s likely that some families have been pushed out of the home-buying market—at least for the time being. (realtor.com)

Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research note. “Sustained increases in mortgage rates will be an additional headwind for home sales going forward.”  He also added that, “Buyers of a median-price home are looking at a monthly mortgage payment that is almost 50% higher than it was a year ago, adding an extra $580 to their monthly expenses,” Ratiu said. “It is not surprising that many are stepping back from the market, hoping that conditions will improve.” 

Homebuyers should know that housing prices should slow down a bit in the coming months.  It’s not expected that they’ll completely fall, though. It's more likely that high prices will continue and that even steeper rate hikes aren’t going to be enough to overcome the amount of buyers willing to waive contingencies and pay premium prices to secure a home.

Those who persist, could be rewarded with a less competitive market, which could give them more homes to choose from and a lower likelihood of facing a bidding war. The demand is strong and will remain strong due to the buyer pool being deep. 

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If you’ve been debating on whether now is the time to sell your home or you are just curious about the current market conditions in our area - give us a call! Our team of experts are ready to help you make the best possible choice for you and your family! 

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