It doesn’t appear there will be any serious relief in mortgage rates any time soon.
Citing the risk of “volatile” inflation, the Federal Reserve has revised their longer-term view of interest rates upward.
Rates have been in the 6.6% to 7.0% range for some time now.Some analysts believe mortgage rates could vary from 6.2% to 6.7% by the end of 2025, wich would offer a bit of relief to home buyers.
As expected, the Federal Reserve cut interest rates last week. So the question is: now what?
Also, as expected, mortgage rates should drop – but by how much? Fannie Mae predicts mortgage rates will be in the 6.20% range by the 4th quarter of 2024 and around 5.70% by the 4th quarter of 2025. A nice drop from the 7.70% high in October 2023 but nowhere near the 3.0% average before the pandemic.
And how will this affect market prices? Time will tell.
With inflation down to 2.9% in July, most analysts are hopeful that the Federal Reserve will make rate cuts at their September meeting and maybe follow it up with another rate decrease before the end of the year.
If this happens, is it time to consider selling?
While many would-be sellers have been reluctant to put their house on the market because they didn’t want to from a 4% mortgage rate to 7.5%, a 1 to 1.5% increase is certainly more palatable. Likewise, buyers that didn’t qualify at 7.5% have a much better chance at 6%.
Experts agree that home prices will remain high in all likelihood with multiple offers a real possibility.
While the housing market continues to improve incrementally, it’s generally agreed that things won’t really begin to get moving until mortgage rates drop. Rates have already dropped nearly 1 point since last fall, but there’s still quite a ways to go.
According to a recent survey, 22% of Americans said they could afford to buy a home if interest rates fell below 6%.
In the same survey, 32% said it would be possible if rates fell below 5%.
The news was discouraging for would-be homebuyers right in the heart of the prime spring season as jumped to 6.57%, a significant increase from 6.39% just the week before.
Meantime, listing prices ticked up 0.7% and many predict they will begin actually declining before the close of 2023.
Finally, listings wee down 26% from the same time in 2022, largely because existing homeowners are not interested in taking on mortage rates that are at least 2 percentage points higher than what they are currently paying.
For the first time since April 2002, mortgage rates have risen to over 7 percent, currently 7.08 percent compared to 6.94 percent last week. One year ago, mortgage rates were 3.19 percent.
This is a 56 percent increase in the monthly payment for the same amount borrowed in October 2021.
In 2002, a median single-family house in California cost $317,000; today it’s $822,000.
As the U.S. Federal Reserve continues to raise short-term interest rates in an effort to get inflation under control, it is expected that mortgage rates will follow suit, as they typically do.
Using median list prices for September 2022 as compared with September 2021, buyers this year are paying almost 80 percent more for the same house!
Of course, this is pricing more and more would-be homebuyers out of the housing market.
The good news is that prices have come down slightly in many markets.
As the U.S. Federal Reserve is expected to raise interest rates in response to continuing high inflation, most analysts believe mortgage rates will exceed 6 percent by the end of the year, if not sooner.
Just a year ago, mortgage rates stood at 2.88 percent and, as of the week of September 8, are now 5.89 percent. Many buyers are leaving the market, meaning sellers will have to make adjustments – primarily lowering their asking price.
Analysts also worry that continued rate hikes will push the country closer to a recession.
After their late September meeting, the Federal Reserve announced that “a moderation in the pace of asset purchases may soon be warranted.” During the pandemic, the Fed has been buying up billions of dollars in mortgage debt, thus keeping mortgage rates very low.
Analysts expect the Fed to gradually cut back on their purchases, possibly as early as November. Many predict rates will continue to rise into Spring 2022.
According to Berkshire Hathaway HomeServices’ latest Homeowner Sentiment Survey 60 percent of those surveyed maintain confidence in the U.S. economy while 70 percent view the real estate market favorably.
On the other hand, a growing number of potential homebuyers – particularly millennials – are discouraged by rising mortgage rates and say that it may prevent them from buying a home.
Current rates are still low by historical standards – 4.02 percent for a 30-year fixed loan as of May 18, but 68 percent of millennials feel a growing sense of urgency to purchase a home as they believe that interest rates will continue to increase.