Mortgage Rates Climbing

Over the start of the new year, we have seen the 30-year fixed mortgage rate increase from slightly above 3% to 3.45%. This is almost a .5% increase in as few as 3 weeks, and they are at the highest level since before the pandemic. In fact, we haven’t seen rates this high since February 2020, which for some reason seems like ages ago. For the buyers who are debating on buying a home now or waiting for inventory to pick up, time may be running out. While this move may seem dramatic to those potential buyers, we cannot say that it was not unexpected. What was unexpected was the velocity in which it happened, but experts were predicting higher rates in 2022 for a while. With mortgage rates climbing, this means buyers should act now.

Experts Predictions

With experts having predicted a higher rate environment in 2022 for months, this should not come as a surprise. In fact, we have talked about the average projections for mortgage rates in 2022 many times on our real estate blog. According to Freddie Mac, most predictions have been around the same levels. Here is a look at the average predictions for mortgage rates according to Freddie Mac:

• Q1 2022: 3.4%
• Q2 2022: 3.5%
• Q3 2022: 3.6%
• Q4 2022: 3.7%

According to the numbers, the jump in rates fall in line with expectations. What these predictions show, however, is the velocity of rate increases will slow. Now, many people are worried because of the possibility of four Federal Reserve rate hikes this year. While the Fed does not control mortgage rates or their increase, their actions do lead to higher rates. Read about how the Federal Reserve impacts interest rates.

What Does This Mean For Buyers?

With rates on the rise, even a moderate rise will dramatically impact buyers. As rates increase alongside home prices, affordability will get crunched. These rate increases impact your mortgage payment monthly, and this impacts the overall affordability of homes. For those potential first-time homebuyers, or buyers in general, rising rates should incentivize you to act soon. There are many potential buyers who are waiting for inventory to increase, however, waiting to buy will cost you. Even sellers are going to lose money and realize the cost of waiting, as rates do not hide from anyone.

However, there is good news for real estate buyers and sellers. Even with rates climbing to levels we haven’t seen since the beginning of the pandemic, they are still historically low. In fact, there are significantly below the decade average. Not only are they 25% below the average of this decade, but they are less than half of decade averages of the past 5 decades. These historically low rates are still worth taking advantage of, especially as home prices increase alongside them.

Mortgage Rates And Buyers/Sellers

What does this mean for the current clients who are active in the real estate market? This means that there is still a fantastic opportunity to move with better mortgage rates than decades average. For those who have mortgage rates in the mid-3s, you have something to brag about. This rate will remain favorable, even though it may not be the lowest rate that was possible in 2021. With information on the chart above, rates can change dramatically in the coming years. Based on the economic projections from the current administration, rates will continue to rise and homeownership will be harder to achieve. Buying now is a hedge against the wild inflation that we have seen in the past few months as well.

According to Nadia Evangelou, Senior Economist and Direct of Forecasting at NAR (National Association of Realtors),

“Mortgage rates surged in the second week of the new year. The 30-year fixed mortgage rate rose to 3.45% from 3.22% the previous week. If inflation continues to grow at the current pace, rates will move up even faster in the following months.”