Rising Mortgage Rates and Buyers

For the many buyers who are on the fence about buying a home, the news of much higher mortgage rates may have raised questions. Because mortgage rates have increased by more than two percentage points since the start of 2022, many buyers are wondering how this might impact their homeownership goals. Well, rising mortgage rates are a cause for questions and concerns. Here is how rising mortgage rates and buyers are correlated, and what it means for the future of the housing market.

In today’s market, buyers are acting in two separate ways. Buyers are either making the decision to buy now before prices and rates continue to increase, or they are waiting it out until rates fall in the future. However, there is little sign that rates will fall in the near-term landscape, and could take 2-5 years before we see any sort of decrease. Given some of the economic data and housing market information we have received in the past few weeks to months, buyers have been taking the leap to buy. In fact, more are looking to actually move forward with buying than those who are waiting.

Mortgage Rates Compared To History

One of the biggest factors that could influence a buyer is the mortgage rate at which they can get their loan. While mortgage rates are rising, and seem to not be slowing down anytime soon, buyers are saying it is a bad time to buy. However, mortgage rates compared to the past are still much lower than the historical average. While we have ticked up to be more in line with the average, we are still below it. Rates are still comparatively low when looking at the data since 1971, and much lower than when most of our parents bought their first homes. Look at this graph to get a wide-scooping view of the history with mortgage rates.

Rising Mortgage Rates and Buyers

While mortgage rates have risen in the year, they are still relatively low compared to the 8% historic average.

According to Mark Fleming, Chief Economist at First American:

“. . . historical context is important. An average 30-year, fixed mortgage rate of 5.5 percent is still well below the historical average of nearly 8 percent.”

So, for those who are deciding to buy now or wait, this data could be very important to know. There is a growing consensus that mortgage rates will reach the historical average at some point in the future, so buying now could say you thousands. The rate today, at 5.3%, is still relatively low when looking to borrow hundreds of thousands of dollars.

Rising Mortgage Rates and Buyers In The Future

For buyers wondering if rates will continue to climb, they likely will. Buyers who are leaping into action now are also increasingly motivated to make their decision before rates increase more. Rates have jumped at times this year, but have mostly slowly grinded upwards. This trend will likely increase, so buying now could save you percentage points on your loans.

With mortgage rate increases looking to continue, you may be wondering how that actually impacts you. When rates climb, your monthly mortgage payment also climbs. A 1% increase in your mortgage rate can lead to a ~15% increase in monthly payments. The longer you wait, the more you will pay. You may be able to refinance into a lower rate when they do come down, but no one really is anticipating for rates to decrease soon. Experts are saying that mortgage rates will continue to rise in the coming months. Odeta Kushi of First American says:

“. . . ongoing inflationary pressure remains likely to push mortgage rates even higher in the months to come.”

For those who are financially able to buy now, it might make sense to pull the trigger on purchasing a home. It only makes sense to buy now and save potentially thousands a year, if you are capable. Some buyers might have been priced out because of rate increases, so taking initiative and buying now could prevent that from being you. We will leave you with this quote from Nadia Evangelou, Senior Economist at NAR:

“With even higher interest rates on the horizon, I don’t see any reason to hold off from purchasing a home right now. If you feel financially secure, you should start looking for a home.”