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What Higher Mortgage Rates Mean for Buyers Now

access_time Posted on: June 28th, 2022

The Fed’s aggressive rate hike at the beginning of May has reshaped the real estate landscape. Let’s take a look at what higher mortgage rates mean for homebuyers.

Silver Linings: Higher Mortgage Rates Might Not Be All Bad

Everyone knew it was coming and now it’s here: the Federal Reserve’s rate hike in May was the sharpest in 22 years. At first glance, the move is bad news for would-be homebuyers, signaling an end to rock-bottom mortgage rates, but there are some glimmers of hope for those struggling to get into the nation’s overheated housing market.

More Expensive Money

Mortgage rates have been rising since the start of the year as concerns about inflation have made increases in interest rates more likely. Average rates on a 30-year fixed-rate mortgage are at 5.25%, according to Freddie Mac, up from 3.2% at the start of the year.

Those numbers were baked in when the Federal Reserve raised its rates while signaling that more increases are on the way. If you are looking to buy a home in the foreseeable future, you should expect to pay more, even for a shorter-term loan with good credit.

Limited Stock

Don’t expect higher rates to make it easier to find a place to buy, at least not yet. Housing remains in critically short supply across the country, particularly for entry-level and starter homes. Changing demographics and years of under-building in the wake of the 2008 financial crisis means that the current market is now short by almost 4 million units.

The looming interest rate increases have not helped the situation because buyers have scrambled into the market to try and lock in low mortgage payments, putting the available stock under even more pressure.

Stiff Competition

What does that mean? If you’re in the market this summer, you’ll see crowded open houses, fast-moving inventory, and multiple offers on any property you might have set your heart on.

The median national home price for active listing reached a record $425,000 in April, according to Realtor.com, while realty group Redfin estimates that 61% of home offers nationwide in April received competing offers, putting more prospective homebuyers in high-stakes bidding wars.

Meanwhile, the average home spent just 34 days on the market in April, down six days from a year ago.

Buyers Priced Out

Inevitably, rising mortgage rates and strong competition for limited inventory mean some buyers are going to be priced out of the market. 

Those who are short on cash for down payments will feel the pinch first, but higher payments are going to mean more people are simply not able to buy a home.

Glimmers of Hope

If you’re able to stay in the market through the summer, however, there are some glimmers of hope on the horizon.

Fewer Competing Bids

As other buyers leave the market, finding and bidding on a home might become less frenetic. While still high, there are already signs that the level of competing bids on homes might have peaked in recent months.

Peaking Home Prices

Similarly, there are signs that home prices might be reaching an apex, with pending sales numbers falling and the number of sellers willing to reduce the asking price of their home rising to 6.9% in April from 5.6% last year. Forty of the fifty biggest metro areas saw price reductions increase in April, up from twenty-five in March.

Cooling Demand

After the rush to beat out the interest rate hike, it now looks like the scramble for mortgages might be subsiding. The Market Composite Index, a measure of mortgage loan application volume, has been declining steadily for weeks and now sits 75% below year-ago numbers. Demand for refinancing has fallen even faster.

Tips for Navigating a Tough Housing Market

That said, it’s not going to get easier to buy a house anytime soon. Here are some ways you can outbid—or outlast—the competition to get the home you want:

  • Know what you want: Being clear about what you expect in your new home can take the emotion out of high-stakes decisions and make compromise easier.
  • Get pre-approved: Home buying with financing on hand is crucial in today’s fast-moving market and will give you the confidence to compete for the house you want.
  • Get down payment assistance: Make your money go further. Low down-payment loans are available through many lenders or the FHA, USDA, VA, and state bodies.
  • Rate proof your budget: More rate increases are coming. Make sure your calculations about the mortgage payments you can afford have accommodated for higher rates.

Let Us Help You Buy in Central Pennsylvania

Market conditions are as challenging in our area as elsewhere in the nation but we’re here to help you make central Pennsylvania your home.

As a local credit union, we know the area’s property market well. We also offer a wide variety of loans with great terms and can guide you through the entire process, from pre-qualification to final closing.

Buying a home is a big decision, so make us your trusted partner for mortgage lending. Click below to learn more about purchasing a home in Central Pennsylvania, and how we can help.

Home Buying Strategies for a Competitive Real Estate Market

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