Mortgage Rates Race Towards 7%

2022 has been a year to forget for many people in terms of net worth, financial security, and housing. In the 9, almost 10 months, of the year, we witnessed mortgage rates go from 3% to over 7% in some markets. In Louisville, Kentucky, unless you are buying down points, your rate is likely to exceed 7%. Here is what to expect to see going further for the real estate market as mortgage rates race towards 7%.

Mortgage Rates Rocket

As mortgage rates continue their parabolic surge towards their highest levels in over 15 years, the real estate market is playing catch up. While many buyers are fortunate to have locked in rates in August, when they dipped towards 5%, buyers now are not that lucky. Anyone starting their home search this month is likely to experience a squeeze in their purchasing power, alongside home prices. These factors, higher prices and higher rates, are pricing out a leu of buyers in the market. Real estate looks to continue to slow into the new year, as the higher-for-longer scenario seems to take hold in markets.

Mortgage Rates Race Towards 7%

The average mortgage rate for a 30 year fixed rate mortgage have skyrocketed in 2022.

The average rate on a typical 30-year fixed mortgage jumped from 6.29% to 6.7% in the last week. While the average has not hit 7% yet, in most major markets, buyers are seeing the 7% handle on the ALTA statements. The mortgage rate market has not been one to disappoint in terms of volatility this year. The ‘sell everything’ mindset has taken hold, leading to negativity in all markets, with real estate having an outsized impact on GDP numbers.

Mortgage Rates Race Towards 7%, Slowing Demand

While we enjoyed the fruits of the real estate market in terms of economic output during the pandemic, this trend seems to be ending. Real estate has an impact on every level of the economy, especially your local economies. To see this level of slowing so quickly in such a slow moving market, there is cause for concern. Jerome Powell and the Federal Reserve said that a correction in the housing market is likely due to the higher-for-longer rate mantra. We are already seeing this correction in the real estate market.

Housing Correction?

For the first time since 2012, we have seen a correction in the real estate market. Prices are finally starting to come down, in line with rising mortgage rates. This correction is on a month-to-month basis, as year-to-year prices remain extremely elevated. However, we could see some year-to-over decreases coming into Q1 and Q2 of 2023. This is largely a factor of home prices rising too much to be sustainable. Another large factor is, of course, mortgage rates and mortgage activity. Elevated borrowing costs continue to impact affordability, as well as mortgage activity.

“There has been a significant change in homebuyer sentiment, especially with what rates have done in recent weeks,” Jason Sharon, owner and broker of Home Loans Inc., told Yahoo Money. “I’ve had 10 people in the last 10 days effectively decide that because of the change in rates they’re withdrawing from the home shopping for a bit. Most of them were repeat buyers.”

Can We See More Pain?

This quote is not one for surprise. We have seen a tremendous amount of buyers give up on their home buying journey. Unfortunately, this will likely continue for some time. Mortgage rates are almost 3.5% higher than they were from the start of 2022. Compared to the all-time lows hit in 2021, mortgage rates are a whopping 4.75% higher. For those who were lucky enough to buy with lower mortgage rates, be sure to thank your officials for ‘free money.’ We say ‘free money’ loosely, as 2.5% interest rates with 8% inflation and rates now being almost 3x higher seems free. What a difference one year can make in the real estate market.