How To Approach Mortgage Rates Rising as a Home Buyer

In the last few weeks, the average 30-year fixed mortgage rate from Freddie Mac inched up to 5.75% conventional for 20% and 5% down, and FHA rates are at 5.50% with 3.5% down as of today, May 9th. While that news may have you questioning the timing of your home search, the truth is, timing has never been more important. Even though you may be tempted to put your plans on hold in hopes that rates will fall, waiting will only cost you more. Mortgage rates are forecast to continue rising in the year ahead.

Mortgage Rates Since the Last Housing Boom 

It helps to understand the mortgage rates trends and dipping into the 3.5% and below range wasn’t normal. The Feds propped up the 10-year Treasury Yield to help stabilize the job market and the economy due to the pandemic. Due to Supply and Demand prices kept rising.  In 2021 the home-buying frenzy occurred driving up prices even more.

The Housing Bubble

As you can see by the graph below how the last housing bubble started in 2000 and mortgage rates were at a whopping 8.62%. The only way to protect the housing market and future equity growth was to get a handle on Supply and Demand and home prices. You buy a house vs renting to build your future wealth via your home equity. Yes, it’s a bummer you could capitalize on the low rates, and on the other hand, how would you feel if the value of the home plummetted and you were paying for a house with negative equity. In order for the economy not to slip from inflation to recession, changes needed to occur quickly. The job market changes in 2005 started the chain reaction of the Great Recession and the Crash in the housing Market NOT mortgage Rates. Another way to look at it is how would you feel if we kept going with the low rates, inflation moved to recession and you lost your job and couldn’t pay for your mortgage. I was there the first time, this was the right move.  I just prepared a detailed blog post Are We in a Housing Bubble Ready to Pop?

10-year Treasury Yield affects the Mortgage Rates NOT the Federal Reserve Interest Rates.

To prop up the economy during the pandemic the Feds offered investors a great incentive to buy 10-year Treasury Bonds. The yield went to record lows and mortgage rates followed. So now we have to add another layer to this hot mess and the cause of the huge increase in the 10-year Treasury is the war in Ukraine setting off crude prices to rise and adding to the inflation problem we already had.  The great news is all can be fixed in time. What we need to do at this point is protect our steady growth in the housing market, keep inflation in check, and the jobs market.

My Solution to Mortgage Rates Rising

One thing history has shown us from the above graphs, what goes up will come down so you can refinance to lower your mortgage rate and your monthly payment. The bad side of most mortgage rate refinances you have to pay bank fees again.