30-Year Mortgage Interest Rates Just Skyrocketed – Could This Mean The Buyer’s Market Is Ahead?

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If you’ve dipped your toes into the real estate market over the past couple of years, you’ve probably noticed that it’s hot. Historically low interest rates have drawn throngs of buyers competing for very few homes on the market, leading to properties selling well above their list price and buyers taking huge risks (like giving up inspections in the hope of making their offers stand out).

Now, for an intrigue, the feds have just hiked interest rates again – the biggest hike in 35 years, in fact – and the average 30-year fixed mortgage rate is climbing to 6%, which is the highest we have seen. since the 2008 recession. Real estate agents and mortgage brokers say rising rates will undoubtedly shake up the housing market and could potentially help tip the tide in favor of buyers, but with some caveats .

“With the most recent rate spike, some buyers are pausing their home search, waiting to see where rates stabilize,” says Melissa CohnRegional Vice President of William Raveis Mortgage.

So this is a good news and bad news scenario if you are a typical buyer: There may be less competition for homes, but buying those homes will cost you more because it will cost you more to borrow. (Cash buyers, whoever you are, aren’t affected by the rate hike because they don’t take out mortgages.)

You see, the year started with 3% interest rates on 30-year fixed loans, the most popular mortgage product. But now, at nearly 6%, buyers continuing their home hunt may need to adjust their prices, Cohn says. To help put things into perspective, a monthly mortgage the payment (without taxes, insurance, HOA dues) on a $375,000 loan at 3% would be equivalent to a monthly mortgage of $1,581 on a 30-year fixed loan. At 6%, where the rates are now, it’s $2,248 per month.

Moreover, with higher interest rates, refinancing demand has fallen dramatically because the majority of homeowners already have rates well below 6%, Cohn says.

“If someone is just looking to refinance for a rate, they’ve most likely missed the mark,” she says.

Rising interest rates are likely to have the most profound effect on first buyerssays Bill Gassett, Massachusetts realtor and founder of Maximum real estate exposure with 35 years of industry experience.

Since all real estate is local, rate hikes will reshape the market differently depending on where you live. But in areas where inventory is most depleted, it will take some time before interest rate hikes shift the market to favor buyers over sellers. “The first signs will be much less bidding wars and house wars not sell above the asking price, Gasset said.

But rising rates could also mean fewer people are willing to sell, he points out. If homeowners are sitting on a 3% mortgage, there is little incentive to sell, move and accept a 6% interest rate, which could worsen inventory shortages.

On the other hand, if rates continue to rise, sellers’ sentiment may be to list their homes because they don’t want to miss out on the fact that this is a market in their favor, says Esther Phillips, Senior Vice President and Director of Sales. at Key Mortgage Services.

Phillips’ advice if you want to hold your own in this market?

“The most important thing is not to panic and run out and buy a house or pull yourself out of the market altogether,” she says. “Consult with a professional loan officer who can work with you to understand your comfort level with paying and offer pricing and product solutions that will help you stay in your comfort zone.”

To keep things in perspective, says Phillips, inflation hits all housing costs, whether you buy or rent. So if your goal is home ownership, rising rates shouldn’t necessarily be what knocks you out of the market. And if you are are going to buy in this potentially less competitive market, refinancing when rates are lower is always an option.

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