Rising Mortgage Rates Cause Buyer Pull Back!

Last week, interest rates surged to their highest levels in only a month and of course, homebuyers have been turning their heels. The total applications for a mortgage have decreased significantly as the interest rates have risen. Mortgage applications to purchase a home fell 4% for the week but were 7% higher than a year ago. Buyers are now facing a tightening supply situation once again. The inventory of homes for sale was rising sharply in the second half of last year, but the gains have been shrinking, and inventory is already lower annually in some major metropolitan markets.

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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 4.12% from 4.04%, with points increasing to 0.38 from 0.37 (including the origination fee) for loans with a 20% down payment.

Mortgage applications to refinance, which are usually very rate-sensitive, actually increased 2% for the week and were 87% higher than a year ago, when interest rates were 65 basis points higher.

Mortgage rates continued to move higher this week and could rise further even if the Federal Reserve cuts interest rates. Mortgage rates loosely follow the yield on the 10-year Treasury.

“Even though the Fed will almost certainly cut rates at the end of the month, additional cuts depend heavily on the balance of economic data,” wrote Matthew Graham, chief operating officer at Mortgage News Daily. “To whatever extent the data is strong, the Fed becomes less likely to continue cutting rates, and the broader financial market becomes less interested in bonds.”

The 30-year, fixed-rate mortgage, a popular one held by millions of Americans, is now at 4.6 percent, only slightly below the five-year high of 4.66 percent set in May. It is significantly higher than the all-time low of 3.31 percent six years ago, according to data from Freddie Mac. Data from other analysts suggest that new homeowners could be facing even higher rates.

Buying a home as mortgage interest rates are rising is nothing to fear.

From a historical standpoint, a 5% mortgage rate is still remarkably low. And a mortgage today with a fixed price for the next 30 years is still considerably cheaper than historical comparisons, as seen in data provided by mortgage lender Freddie Mac. The annual average for 30-year fixed mortgage rates has not reached 5% since 2009. At the start of the Great Recession in 2006, the average mortgage rate was 6.41%. Ten years earlier, in 1996, the average mortgage rate was 7.81%, and ten years earlier than that in 1986, the average mortgage rate was 10.19%.

Interest rates remaining near historic lows bodes well for buyers, and today’s market reflects some of the cheapest debt a home buyer will be able to attain in the market. Most importantly, finding the right mortgage depends on receiving the right advice from a seasoned real estate expert who personally owns many properties and has transacted numerous real estate sales for others. Working with an expert enables prospective investors to feel more knowledgeable, confident, and secure with their financial decisions.