Interest Rates on 30-Year Mortgages Spiked

If you’ve dipped your toes into the real estate market during the last couple of years, you’ve probably noticed it’s boiling hot. Record-low interest rates brought out droves of buyers competing for very few homes on the market—which led to properties selling for way over their list prices and buyers taking humongous risks (like waiving) inspections in hopes of making their offers stand out).

Now, for a plot twist, the feds just raised interest rates again—the biggest hike in 35 years, in fact—and the average rate on 30-year fixed mortgages is climbing up to 6 percent, which is the highest we’ve seen Realtors and mortgage brokers say the rate hike will undoubtedly shake up the housing market, and could potentially help swing things back in favor of buyers, but with some caveats.

“With the most recent spike in rates, some buyers are pausing their home search, waiting to see where rates will stabilize,” says Melissa CohnRegional Vice President of William Raveis Mortgage.

So, this is a good-news, bad-news scenario if you’re a typical buyer: There may be less competition for homes, but buying those homes will cost you more money since it will cost more to borrow. (All-cash buyers, whoever you are, aren’t affected by the rate hike because they aren’t taking out a mortgage.)

You see, the year started out with 3 percent interest rates on 30-year fixed loans, the most popular mortgage productBut now at nearly 6 percent, buyers who continue their house hunting may need to adjust their price points, Cohn says. To help put things in perspective, a monthly mortgage payment (without taxes, insurance, HOA dues) on a $ 375,000 loan at 3 percent would equate to a $ 1,581 monthly mortgage on a 30-year, fixed loan. At 6 percent, where the rates are now, it’s $ 2,248 a month.

Also, with higher interest rates, refinancing demand has dropped significantly because the majority of homeowners already have rates well below 6 percent, Cohn says.

“If someone is just looking to refinance for a rate, they have most likely missed the boat,” she says.

The interest rate increase will likely have the most profound effect on first-time buyerssays Bill Gassett, a Massachusetts realtor and the founder of Maximum Real Estate Exposure with 35 years of industry experience.

Since all real estate is local, the rate increases will reshape the market differently depending on where you live. But in areas where inventory is the most parched, it will take some time before the interest rate increases change the market to favor buyers versus sellers. “The first signs will be far fewer bidding wars and houses not selling over the asking price, ” Gassett says.

But the rate increase could also mean fewer people are willing to sell, he points out. If homeowners are sitting on a 3 percent mortgage, there’s little incentive to sell, move, and take on a 6 percent interest rate, which could compound inventory shortages ..

On the flip side, if rates continue to rise, the seller sentiment may be to list their homes because they don’t want to miss out on it being a market that’s in their favor, says Esther Phillips, senior vice president and director of sales at at Key Mortgage Services..

Phillips’ advice if you’re going to stick it out in this market?

“The most important thing is to not panic and run out and buy a home or completely take yourself out of the market,” she says. “Consult with a professional loan officer who will be able to work with you in understanding your payment comfort level” and provide both price and product solutions that will help keep you in your comfort zone. ”

To keep things in perspective, Phillips says, inflation hits all housing costs, regardless if you are buying or renting. So if your goal is homeownership, a rise in rates shouldn’t necessarily be what takes you out of the market. And if you are are going to buy in this potentially less competitive market, refinancing down the line when rates are lower is always an option.


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