Just last week, the Federal Reserve increased interest rates, and extended the length of US bonds that directly affect consumer mortgage rates – hitting an all-time high since 2011. According to the Mortgage Bankers Association, the average 30-year fixed rate mortgage rates reached 5.05%. Freddie Mac weighed in with their 30-year fixed mortgage rates hitting 4.98%. This could be depicted as both good, and bad.
On one hand, a rise in mortgage rates is a sign of a healthy economy, however, the increase on mortgage rates are resulting in limited buying power. Some professionals in the industry see this as the start of what could be considered another recession. Personally, I don’t believe we will necessarily be in another recession, but I can say with certainty – when buying power becomes limited, home values tend to fall.
Allow me to explain. Just this time last year, mortgage rates were nearly an entire percentage less what they are now. 1% could mean the difference of being able to afford a $250,000 home and being able to afford a $200,000. Those who need to sell may find that in order to get their home sold, they will need to lower the price below the current fair market value. When this starts to happen, the over-all fair market value around those homes will also fall due to that sale.
There has already been a bit of a lull within the market, but is it 100% due to the increase in mortgage rates, and the limited buyer capabilities? No. Statistically, the past few years have grown in the number of buyers vs sellers. With there being a limited inventory, homes were being snatched up within hours of being listed in the MLS. Many buyers have grown weary of the race, the bidding wars, and now with the added frustration of the highest mortgage rates we have seen in 7 years, buyers are just plain tired.
In my professional opinion, mortgage rates are going to continue to rise – limiting buying power, and in turn will make it more difficult for sellers to get the most for their home. If you’ve been sitting on the fence as to whether or not it’s time to buy or sell, stop! Act now, or you could be waiting years for another chance to come along.