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Mortgage rates have been consistently on the rise as the Fed struggles to battle inflation.
With a recession looming in the distance, you might ask yourself: “Is now the right time to buy a house?”
It’s an understandable question considering how inflation has soared, house prices are high, and mortgage rates keep rising in response. No one wants to make a wrong financial decision.
But it might not be a bad financial decision to buy a house right now. Let’s talk through mortgage rates, how they work, and whether or not today is the right time to buy a home, given the state of the market.
Forecasting mortgage interest rates explained
Mortgage interest rates are changing daily.
It used to be that banks would set the mortgage rates for the day, and then change them the next day, or week, or month, depending on the climate at the time.
Unfortunately, it doesn’t work like that anymore. Wall Street is heavily involved in setting mortgage rates because people buy and sell mortgage-backed securities.
When these securities go up, the mortgage rates go down, and conversely, when the securities go down, mortgage rates go up.
The Fed steps in to help regulate this by buying a portion of the securities and helping to set the rates.
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What are the experts saying about mortgage rates now?
While the rates are still increasing steeply, both reporting agencies believe that since the feds are selling their mortgage-backed securities, they will begin to come down.
Not every expert is sure, however.
Len Kiefer, the deputy chief economist at Freddie Mac, said with the market as volatile as it is, “It is difficult to foresee how future expectations may shift in response to events, so the direction and magnitude of impact are impossible to predict.”
Basically, he doesn’t want us to get our hopes up about changing rates.
It’s true that no one expected the pandemic, and it drastically changed everyone’s financial situation—primarily where the housing market is concerned. Experts are now hesitant to make any sort of prediction in response.
Are rates expected to go down before the end of the year?
Unfortunately, rates are not likely to go down by the end of the year.
The Fed’s main priority right now is curbing inflation. They do this by hiking reserves. With three more meetings this year, it’s likely that the feds will hike the reserves more steeply again.
These hikes negatively impact low-interest rates. We’re likely to see mortgage rates trend upwards throughout the end of 2022.
Will interest rates go down in 2023?
The Feds are now focusing on lowering the mortgage rate to two percent. They’re expected to hit that number sometime in 2023.
After that, we’ll likely see mortgage rates decrease and continue to fall in 2024 and 2025 as we reach economic stability.
Should I buy a home now or wait?
While interest rates might be high, the real estate market is slowing down.
House-bidding wars are becoming less common than they were, even a few months ago, and houses are staying on the market longer. When the real estate market slows down, it’s usually a better time to buy.
Experts suggest continuing to look for a home but only bidding on the asking price and locking into a reasonable mortgage rate.
You can always refinance down the line if mortgage rates drop to historical lows again. But you’re locked into a better rate if they continue to rise.
If you wait to see if the mortgage rates fall, you might find yourself looking at higher home prices than we currently have. It’s a tradeoff, but there’s really never going to be perfect market conditions in which to buy a home.
What do these rates mean for refinancing?
This answer will vary by homeowner and depend on how high your current mortgage is.
Experts often say it’s best to refinance your home when you can reduce interest by at least .75 points to make the refinance worth it. If you can’t, you may find that you’ll pay more in fees than you would save with a new rate.
If mortgage rates are around 5.50% and your mortgage is above 6.25%, refinance is a good idea. If it’s lower than that, you should hold off and see if interest rates will go down in 2023.
Don’t just consider 30-year mortgages. Look into 15-year mortgages as well. These tend to have lower interest rates. The tradeoff is that you might end up with a higher payment. But the money saved could be worth it in the long term.
Many lenders, such as homefinity.com, offer both 30-year and 15-year fixed mortgages.
Homefinity can help you navigate the market
Buying a home might be the right decision for you and your family.
Sometimes it’s about finding the right property to fit your needs, instead of looking around at the optimal financial decisions.
The bottom line is that it’s not a bad time to purchase or refinance.
Keep an eye on Homefinity’s mortgage rates page to help you decide if it’s the right time to make a move. We also have excellent calculators to help you determine your mortgage costs or calculate a refinance.
When you’re ready to take the next step in purchasing or refinancing, reach out to the experience loan officers at Homefinity. They’ve been through every market condition and can help guide you to the right decisions for your financial situation.
Photo by Karolina Grabowska