With inflation rates continuing to climb, how can the movement of mortgage rates contribute to the wellness of our economy today?

A Year Can Make a Lot of Difference

Mortgage rates, while still relatively low, have changed a lot in the course of just one year. And what a difference that one year makes. 

Back in April 2021, the average 30-year mortgage rate was at only 3.06%. In mid-March 2022, the rates were still below 5.00% but were already well on their way to breaking the 5.00% mark. March ended with a 5.00% rate for purchases and 5.12% for refinancing. Fast forward to today, according to Bankrate, the average mortgage rate on a 30-year fixed-rate mortgage is already at 5.42%.

Check out how interest rates for a 30-year fixed-rate mortgage have increased over the past thirteen months below: 

  • April 2021 – 3.06%
  • May 2021 – 2.96%
  • June 2021 – 2.98%
  • July 2021 – 2.87%
  • August 2021 – 2.84%
  • September 2021 – 2.90%
  • October 2021 – 3.07%
  • November 2021 – 3.07%
  • December 2021 – 3.10%
  • January 2022 – 3.45%
  • February 2022 – 3.76
  • March 2022 – 5.00%
  • April 2022 – 5.22%

Several factors come into play when we look at how mortgage rates have changed over the past few months. There’s the ongoing war in Ukraine, current inflationary pressures, and, of course, the ever-consistently inconsistent stock market performance.

With the way things are going right now, a person is led to ask, how will mortgage rates behave in both the short and long term? Are we in a housing bubble? What does the future look like for property owners, potential buyers, and real estate investors? 

Keep reading to find out what industry experts and professionals have to say regarding the matter.

Possible Emerging Trends in the Near Future

Due to the circumstances that currently affect the real estate market, a few industry professionals and insiders have given us their two cents on what to expect in the next few months. 

Expect to Pay More in the Coming Months

Typically, during this time of the year before the COVID-19 pandemic hit us, we would be at the peak of homebuying season. Springtime has been historically proven to be the best season for the real estate sector as folks looking to buy houses and investment properties come out and do their shopping. 

However, costlier mortgages are causing a lot of potential house buyers and income property investors to think twice before entering a contract.

According to Bankrate’s chief financial analyst Greg McBride, an increase in higher rates is inevitable “with inflation still accelerating and the Federal Reserve on the cusp of starting to run off their bond portfolio.” He then adds that the May 2022 benchmark for a 30-year fixed-rate mortgage will likely be between 5.50% and 5.75%. If—and when—that happens, it will be the first time since 2009 that we will see rates that high. 15-year fixed rates are also expected to go up to between 4.74% and 5.00%.

National Association of Realtors’ director of forecasting and senior economist Nadia Evangelou pretty much has the same prediction for May and the coming months. She anticipates an increase in mortgage rates for 30-year and 15-year fixed mortgages to be at 5.20% and 4.50%, respectively. 

One of NYC-based Cassin & Cassin LLP’s partners, John Thomas, is slightly more pessimistic about what to expect in the coming months. According to Thomas, many economists are expecting a rate hike of between 50 and 75 basis points in June to mitigate the effects of inflation. This is validated by the Federal Reserve’s recent approval of an increase of 50 basis points to its policy interest rate to reduce the effect of inflation.

How Will Higher Rates Affect the Housing Market?

As the news about the Fed’s decision spread, realtors, lenders, brokers, and other real estate professionals considered how it will affect the housing market. Realtor.com’s chief economist Danielle Hale said that this decision impacts “household budgets, balance sheets, and spending decisions via their impact on interest rates like mortgage rates.” 

To home buyers and real estate investors, this means that access to more affordable housing will be limited. For this reason, buyers and investors need to exert some extra effort in looking for the right property that fits their criteria and investment goals. A real estate website like Mashvisor is especially useful in finding the best possible deals in almost any market across all 50 states. Its real estate investment tools like the Property Finder, Real Estate Heat Map, and Investment Property Calculator make the process of property search and real estate market analysis a lot faster and more efficient. 

Mortgage Rates: Expect to Pay More in the Coming Months

Prepare for Any Mid-Year Adjustments and Changes

As we near the midpoint mark of the year, where will the winds of change blow our mortgage rates? 

Industry experts agree that as inflation is expected to stay high in the next few months, the upward trend of mortgage rates will continue. NAR’s Evangelou says:

The Fed will continue its tightening monetary policy through a series of interest rate hikes and by reducing its balance sheet. Thus, the 30-year fixed mortgage rate may reach 6.0 percent by the end of the first half of this year.

Thomas agrees as he predicts that 30-year fixed-rate mortgages will hit as high as 6.50% by mid-year with 15-year fixed-rate mortgages getting to about 5.50% by the end of the first half of the year. 

Related: Real Estate Market 2022: Which Predictions Came True and Which Ones Didn’t

Give Careful Thought to Mortgage Options

Given the way things are right now, buyers and investors are faced with a dilemma: wait for property prices and mortgage rates to drop, or buy what they can afford now and avoid paying more months? 

McBride says there are no benefits to waiting at this point. However, he also advises against buying now for fear of missing out. According to him:

Prices are very elevated right now, and the more you pay now, the longer you’ll need to stay in the home to recoup transaction costs and build any portable equity.

Thomas, on the other hand, supports a carpe-diem mentality as long as you’re in a good position to do so. This means you have a stable source of income and are doing pretty well financially. He explains that buying a house now while you’re able to do so is the best time since there’s pretty much no end in sight for property price increases and mortgage hikes. 

Evangelou, however, points out that while the average monthly mortgage payment today is $500 higher than a year ago, we are still experiencing (and enjoying) low-interest rates historically speaking unlike, for example, back in 2002 when we had a 7% mortgage rate average. 

Related: What Not to Do Before Buying a House: 6 Mistakes You Should Avoid

Wrapping It Up

A decrease in housing demand may cool down the activity and keep mortgages lower, but given how mortgage rates behaved in the past thirteen months, it is very likely to repeat itself in the second half of 2022. 

With housing affordability slipping through our fingers due to the continuous upswing of mortgage rates, it is important for buyers and investors to perform extensive due diligence to ensure they get the best possible deals today. 

To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.




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