Increased Mortgage Rates: How To Plan

f you’re thinking about buying a home for the 1st Time, you’ve probably heard mortgage rates are rising and have wondered what that means for you. Since mortgage rates have increased over two percentage points this year, it’s natural to think about how this will impact your homeownership plans.

Today, buyers are reacting in one of two ways: they’re either making the decision to buy now before rates climb higher or they’re waiting it out in hopes rates will fall. Let’s look at some context that can help you understand why so many buyers are jumping off the fence and into action rather than waiting to buy.

A Look Back: How the Current Mortgage Rate Compares to Historical Data

One factor that could help you make your decision to buy now is how today’s mortgage rates compare to historical data. While higher than the average 30-year fixed rate in recent years, the latest rates are still comparatively low when you look at the bigger picture of where rates have been since 1971 (see graph below):

A Look Ahead: What Happens if Rates Climb Further

The buyers who are springing into action now are also motivated to make their move because they know rates have risen steadily this year, and they’re eager to get ahead of any further increases.

Why? When mortgage rates climb, they impact the monthly mortgage payment you’ll have on the home you’re buying. Basically, it’ll likely cost you more to buy a home if you wait. Experts say mortgage rates will rise (although more moderately) in the months ahead

Freddie Mac Mortgage Rates

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%. The good news is they have gone down, but due to the economy, they are not stable as of yet. 

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. for the first time since April 9th, the yield went down under 2.8%, so this might be the start of a trend that I’m watching closely.

The Housing Bubble and Home Price Appreciation

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.