Author: Ami Lopez
As we entered 2022, the mortgage interest rate increased by over 2% and was at 5.10% at the end of April 2022. Also, mortgage payments amounts have climbed from $1,283 to $1,629 on a $300,000 home (a 27% increase) since the end of 2021. But how does this affect home buyers, sellers, and the housing market in general? Keep reading to find out.
Historical Mortgage Rates
The current mortgage rate is hovering above 5.10%, which may seem high due to the historically low rates of 3% we recently experienced. We have also witnessed historically high mortgage rates of 16% in the last 40 years.
From 1971 till now, the average mortgage rate for a 30-year fixed mortgage is slightly under 8%, which means our current rate isn’t historically bad.
Also, the current mortgage rates are still lower than in 2006-2008.
Why are Mortgage Rates Rising?
The federal government increases its policy rates to handle the rising inflation, so we may even see higher rates until they have it under control.
It’s important to know that the Fed’s increase in policy rates doesn’t directly raise mortgage rates, but it’s considered one of the major contributing factors.
In the short term, the Fed’s policy will weigh down on the housing market, but housing prices are expected to reduce as a long-term effect.
However, we are experiencing the opposite as housing remains undersupplied in the U.S., and prices remain sky-high.
How Rising Mortgage Rates Are Affecting the Housing Market
When mortgage rates start increasing, the prices of homes appreciate as well, which leads to fewer purchase offers and more cancellations from home buyers. Reports even showed that online home searches have dropped in recent times.
The rising mortgage rate is supposed to cool hot real estate markets by increasing rates, which leads to less home purchasing.
However, the housing market is still competitive for buyers, and houses are still selling within a week after listing. That is because the United States has experienced a shortage of homes for many years. Even in a slow market, there isn’t enough inventory to satisfy the demand at the moment.
Analysts say that home building drastically reduced after the Great Recession and continued moving slowly for many years even after the economy and job market recovered.
The current pace of home building is still lower than in the mid-2000s before the financial crisis of 2008 and the housing market crash.
This short supply of homes and the need for many people to start families are driving the prices of homes despite rising mortgage rates.
Final Thoughts
Experts say that we can expect to see rising mortgage rates until the government has curtailed the effects of inflation.
And as for buyers, you can expect housing prices to remain high due to the undersupply of homes in the country.
But for home sellers, some suggest that this may be a reasonable time to be selling even though buyer offers are reducing. The housing demand is still high, yet the supply is short, so buyers may even increase their prices or reduce contingencies and still sell homes within a few weeks.