Why Are Mortgage Rates Rising? Here’s What You Need to Know!

The Housing Market

Oct 18

If you've been following the recent fluctuations in mortgage rates and wondering how they might impact your home-buying journey, you're not alone. I want to share a story that illustrates the importance of acting decisively in this market.

Recently, I had a client who was eager to rightsize into a new home in Canyon Lake, TX. We spent this entire year (I kid you not) walking properties and hunting for his vision, when we FINALLY found something he was really excited about. However, he held off on making an offer because he was convinced that when the Federal Reserve dropped interest rates last month, mortgage rates would surely follow suit. Now, I’m a closeted economics nerd and I follow a lot of the Academic Economists on the University of YouTube, and I told him that the word on the street is that rates will probably go up before Christmas.

Unfortunately, he hesitated just a little too long and he lost out on that property. The waiting has led us to a point where we might need to spend several more months searching for a comparable property. This experience is a reminder that while it’s natural to want the best deal, timing is crucial in real estate. Let’s dive into what these changing rates mean for you and how to navigate the current landscape with a little less wear and tear on our internal hope heart regulators, y’all.

What’s Happening with Mortgage Rates?

You might think mortgage rates would’ve droped after the Federal Reserve recently cut interest rates. Instead, they’re climbing! Right now, the average rate for a 30-year mortgage is around 6.4%, which is more than a quarter-point higher than just a couple of weeks ago. So, what’s going on?

The Fed’s Role: The Federal Reserve influences mortgage rates, but they don’t set them directly. Instead, mortgage rates often follow the yield on 10-year Treasury bonds. Recently, that yield has gone up because investors think the Fed might be more cautious about cutting rates again.
Lender Costs: When you get a mortgage, lenders add on their own fees to cover costs and make a profit. Your specific rate will also depend on your credit score and the type of loan you choose.
Comparative Rates: Even with the recent rise, mortgage rates are still lower than they were last year. This has allowed many homeowners to refinance, meaning they can switch to a new loan with a lower interest rate, saving them money each month.

What’s Next for Mortgage Rates?

Predicting where mortgage rates will go is tricky because they depend on various factors. Experts generally agree that we probably won’t see super-low rates like we did a few years ago. For example, back in 2019, rates were between 3.75% and 4.5%. Now, they might stabilize around 6% by the end of this year.

According to Lawrence Yun, an economist at the National Association of Realtors, we might be looking at a “new normal” where rates hover around 6%. He believes that seeing rates drop to 3% or 4% again is unlikely.

Should You Buy a House Now or Wait?

The decision to buy a house feels kind of comparable with deciding if it’s a good time (or not) to have a baby…is there ever the perfect time? With rates changing, you might be wondering whether to jump into the housing market or hold off. Here’s the deal: experts suggest it’s better not to wait for rates to drop for a couple of reasons:

Refinancing Possibility: If you buy now and rates go down later, you can refinance your mortgage to get a better deal. But if you wait and rates go up, you could end up paying more.
Home Prices Rise: Home prices usually increase over time. Waiting could mean you end up paying more for a home down the line. There has been a lot of press lately about how home prices are dropping, but remember that the housing market in one part of the country can behave completely differently 500 miles away. This is why it’s important to find a Realtor you trust in the market you are buying in, they will have their finger on the pulse of your local market.

Interestingly, even people who bought homes when rates were super high (like 15% in the 1980s) often ended up doing well because home values increased over time.

What’s Going On in the Housing Market?

Here’s a silver lining: that inventory problem we have all been hearing about since the beginning of Covid? Well, most major markets are back to pre-pandemic inventory levels! And, according to RE/MAX, the nation wide number of homes for sale went up by 6.4% from last month and is 33.6% higher than last year. Plus, houses are sitting on the market A LOT longer, which in theory means there’s less competition for buyers.

But, here’s the catch: home prices are still pretty high. Since early 2020, the median home price has shot up about 50%. As of August, the median price was around $416,700, which is about 3% more than last year.

Seasonal Trends

The housing market usually gets busier in the spring and summer, slowing down in the fall and winter. This might mean that fall could be a good time to shop, as there might be less competition and more room to negotiate on prices. Sellers are starting to realize that they may have to do significant price cuts to motivate buyers to start making offers again.

Experts predict home sales could rise by 10% next year, but a real bounce-back might not happen until spring.

Still On The Fence? Take Charge of Your Future!

So, what does all this mean for you? If you're thinking about buying a home one day, it’s important to stay informed and ready to act! While rising mortgage rates might sound scary, understanding the situation can help you make smart choices.

If you’re ready to learn more about buying a home or just want to chat about your options, reach out! Let’s navigate this exciting journey together!

#RealEstate #MortgageRates #HomeBuying #FutureHomeowner #InvestInYourFuture #HousingMarket #FinancialLiteracy