Buying a home hasn’t been an easy feat for quite some time now. Recent years have been crucial for the housing market, with prices rising dramatically and often. Market prices like these have forced people to postpone buying their first homes or even give up on the idea altogether. With the current rising mortgage rates, the situation might not change soon. The dramatic changes in these rates in 2022 shocked everyone. But what does that mean for homeownership? Let’s break it down!
How High Are the Mortgage Rates Now?
Here is the hard truth — current mortgage rates are 55% higher compared to January 2021. The higher rates come after the sudden rise in housing prices. The rates have increased from around 3% to over 5% within a year. It might not sound like a big growth spur but consider that this percentage contributes to extremely high prices in the housing market.
For example, if you’re looking to purchase a house for approximately $600,000, that means your monthly payment would be higher by around $700 compared to only a few months ago.
Several causes are behind the current surge in mortgage rates, many of which are economic factors. A persistent one, as we mentioned before, is high inflation. The inflation rate was at its highest in the last 40 years in February 2022, rising to a whopping 7.9%. On top of that, other global factors, like the ongoing pandemic, have had a significant impact on the economy, specifically the housing market.
The current predictions state that these rates will continue to rise in May and in upcoming months, as well. However, it’s unlikely that the increase will be as significant as it has been at the start of the year. Naturally, you should take all of these predictions with a grain of salt. The market is extremely unpredictable, thus the current mortgage rates.
Does This Affect Homeownership?
Honestly, it would be surprising if such increases in rates and pricing hadn’t affected homeownership in the States. Homebuyers have had a tough time finding a house within their means, even those with steady incomes and long-term savings.
What’s more, the online searches for “homes for sale” have dropped 10% since last year. These are some early indicators of the waning interest in purchasing a home.
What we also need to consider is the supply and demand relationship. Experts are trying to say that potential homebuyers have a rising interest in purchasing a home, but there are not enough houses on the market. However, many professionals advise homebuyers not to wait around for the housing market to crash. You should keep in mind that if interest rates and mortgage refinance rates go higher, the housing price will follow.
Can the Housing Market Cool Down?
Alternatively, what if mortgage rates remain the same? What happens then? Is it possible for the housing market to stabilize, leaving the prices flat? Experts say yes. If homebuyers’ demands for houses weaken, homebuilders might have time to catch up and bring the current crisis to an end.
How is the Federal Reserve helping by raising interest rates? Well, if the prices of houses keep increasing, homebuyers would have to borrow more money from banks. However, if the interest rates are high, it will make borrowing money more expensive. This might be a good move on their part to pause the rising costs of new homes and, eventually, mortgage rates.
Even with that in mind, it is hard to pinpoint how high the rates will go or how much more expensive the housing market will become. Only time will tell.
What Should Potential Homeowners Know?
Before opting for a mortgage, potential homeowners should shop around for the best mortgage lenders. Today’s mortgage market is as competitive as the housing market, so you know you’re in for a challenge. The options are vast, but you should take enough meetings with banks before making a final decision on the best rates.
At the same time, the rates are not the most important factor when purchasing a home. This is a big and significant investment, so you should really look to get your money’s worth. So, consider your finances carefully. Ask yourself whether you’re ready for such a huge commitment. Check your credit score and make sure you have enough cash for a down payment and whether you can sustain regular mortgage payments.
Once you’ve settled that, take your time looking for a perfect home. Don’t purchase the first one you see, but hunt for them in unexpected places. Consider even foreclosed homes as there are plenty of good opportunities there. Remember that navigating a housing market as volatile as the current one is not easy.