Rising mortgage rates concept

How Rising Mortgage Rates Are Affecting Home Buyers

Many economic experts predicted mortgage rates might start coming down in 2023. Unfortunately, that has not happened yet. If anything, they continue to rise. Average rates have been well over 7% lately and are creeping up on 8%. Yet, there is still demand from home buyers as both mortgage rates and home prices are high.

In today’s article, we want to take a deeper look at how these rising mortgage rates are affecting home buyers and sellers. How long will rates and prices keep going up? Will they ever come back down? Is this good or bad for the real estate market as a whole?

Mortgage Rate Trends

Fannie Mae’s August Housing Forecast shows that the average interest rate for a 30-year fixed-rate mortgage loan is 6.8% for the third quarter of 2023. There’s a chance that number is even higher by the time Q4 is complete, though they are still predicting it to come down some before the year is over. However, their analysts don’t expect to see average mortgage rates any lower than 6% until at least 2025.

Why Are Mortgage Rates So High?

Mortgage rates have risen largely due to the Federal Reserve’s drastic attempts to bring the annual inflation rate down to the 2% target. This has meant raising the federal funds rate (aka The Fed Rate) 11 times since the beginning of 2022. This leads to higher mortgage rates and higher borrowing costs for home buyers who are also coping with rising costs of living because of the inflation.

The Affects of High Mortgage Rates

These high mortgage rates directly affect both home buyers and sellers. Sellers are enjoying high home prices and the benefits of low housing inventory. In other words, there is less seller competition on the market because many homeowners are deciding to stay put right now. This has helped maintained reasonably steady home buyer demand because there are fewer good properties on the market. They find themselves paying a lot for the purchase price, and then having a high-interest mortgage loan on top. It is making it harder and harder for people to afford a home purchase.

Ultimately, this causes problems for both sides of the transaction. Sellers may start having a more difficult time selling as buyer demand dwindles. Home buyers are being priced out of the market and looking toward rentals as a more affordable solution until the rates and/or home prices come back down. It potentially creates somewhat of a “stalemate” in terms of real estate market conditions.

Should I Wait for Rates to Come Down?

Many would-be buyers are content to wait it out and hope that mortgage rates come back down sooner rather than later. Others are still in position to buy. They are willing to pay a little more now for the right house because they know there will be long-term financial benefits. After all, mortgage interest is tax deductible and there will generally be opportunities to refinance the home loan if and when rates do come back down again. Meanwhile, home prices will likely continue to rise and may jump up even further when mortgage rates are lower and buyer demand is higher. Someone getting into a new home now may benefit from strong appreciation in the future. Someone waiting to buy may get a lower rate later, but could be spending more on the home’s purchase price.

Real estate is always relatively cyclical. Mortgage rates go up and down, while home prices tend to rise over the course of time. Buyer demand and inventory have their ebbs and flows based on the overall market conditions. 

Helping You Make the Right Moves

What we always like to say is that there are right and wrong times to buy a house. When those are will depend on the home buyers themselves. It may be a great time for you to purchase a home now. Or, you may be better off waiting for the rates to come back down if you are not in a strong financial position.

This is why The Cyr Team consults with home buyers and sellers on an individual basis. We can take the time to understand your needs and goals, then provide our real estate market insight to help you make the best decisions. Contact us today to get started. We’ll be happy to answer any questions you have about the current market and provide guidance as you prepare to make your move.

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