Many thanks to Carol Rudd, one of the mortgage brokers I work with, for this article:
Our mortgage analysts are still predicting interest rates to ease/drop by Q4 to Q1 2023, when inflation is curbed by the Fed increasing the short-term rate. Current average 30-yr. conventional fixed rate is 6.5% (6.554% APR).
Back in 2008-2010, the housing crash was in large part due to the amount of loans that were given to borrowers that had low credit scores and a higher risk of defaulting– no verified income, no verified asset loans. There was the possibility the borrowers didn’t qualify for the loan they were receiving. Therefore, the housing crash began and homeowners started walking away from their homes. In addition, the demand was not as high as it is right now.
Fast forward to 2022, everyone who has purchased a home from 2010 to 2022 had to be highly vetted and qualified to buy that home…along with appraisals and values having to actually appraise at market value. Yes, there are still foreclosures – but not nearly as many, and homeowners actually can afford to make their monthly payments. Demand is also extremely high. The amount of people of homebuying age (average mid 30’s) is higher than usual which will continue to increase the demand for homes. The new home construction pace is not keeping up with the demand for those entering the market now.
There is uncertainty in the market, IE: inflation, recession, the Fed keeps raising the FED FUNDS rate, housing prices are coming down a little, stock market is plummeting, crypto and stock market tanking, are we in a housing crash, etc.? Here are our thoughts:
- The Fed funds rate doesn’t directly drive mortgage rates. The rise of the Fed funds rate directly correlates to the interest rate that depository institutions such as banks, savings and loans, and credit unions charge each other for overnight loans. It also directly affects credit cards, car loans, home equity lines of credit (short-term interest rates).
- The Fed has increased the Feds fund rate to effectively shrink the supply of money available for making purchases and trying to halt purchases/slow down the economy which in turn should slow down or stave off inflation to avoid a long recession. We believe that there will be a recession, but historically during every recession mortgage interest rates have come down and we believe that this will be the same this time around.
- Many experts believe that there is a small window of opportunity for buyers to purchase homes that are at less expensive values, with less competition. Over the last several years we have seen sellers putting homes on the market that receive 10+ offers over asking price, escalating up 30%, and waiving financing, inspection, appraisal contingencies, etc. This isn’t happening as often in this current marketplace. We believe there is a 6-9 month opportunity for buyers to get a home at or just above list price, saving thousands of dollars because they won’t have to escalate 20%-30%; even though interest rates are higher– there will be an opportunity to refinance when rates come down over the next several months to a couple of years. Rates will come down, so consider the current interest rate as a “temporary rate” — you’ll be making 6%-10% return on your investment in your home in the meantime.
- A lot of potential buyers are saying they are going to wait and see what the market does, BUT this is only creating more pent-up buyer demand that will eventually push home prices and bidding wars to an all-time high again, so we suggest buying during this time rather than waiting it out.
- Take the higher rate and refinance down the road to save money on a monthly basis; don’t compete with all of the buyers that will eventually want to buy again, and save thousands on the purchase price.
- Home prices are still projected to increase 6%-10% which is healthy, the days of 25%+ increases annually are over and that is good. Inventory is a bit higher which is good too, but again, demand is still there so take advantage of the correction and the slow down.