Are you noticing the mortgage interest rates?

Castles in the Sand

My April 20 column was titled “The end of an era,” the era being one of ultra-low mortgage interest rates. In that column I reported that the current average mortgage interest rate was 4.72%, a rate that was probably already a week old.

Now, only a month later, the average interest rate is 5.42%, likely hovering just above 6% after the most recent Federal Reserve rate hike of half a percent. When the rate hit 5.27%, it represented a 13-year high.

So far, the country in general has not seen a slowdown of the surge in home prices, according to the National Association of Realtors. Quite the contrary, many buyers are trying to lock in purchases before the rates climb even further, which Realtors can guarantee they will, continuing to push selling prices up and up.

So, what does the average potential home buyer do in this real estate environment? Mortgage interest rates are going up almost weekly. Inventory is being depleted with everyone rushing into the market before the rates go up even more. Sellers are taking advantage of the increase and the anxiety of buyers to do tough negotiating and/or increase their asking price.

Many buyers are just dropping out, renewing their leases, moving in with family and waiting for the insanity to end. Others who can afford it aren’t giving up. Some are opting to pay fees to secure lower rates in the form of rate lock-in agreements. It’s not unusual for the typical 60-day lock-in to expire before the buyer finds a property, putting them in the position to extend the lock-in, costing – of course – more money. Others are adding cash into the transaction so they can qualify for a lower mortgage amount making up for the higher rates.

In addition, adjustable-rate mortgages are starting to come back starting under 4% for now. This new generation of adjustable-rate mortgages are more closely regulated than the ones that helped to create the financial crisis. At that time, low teaser rates attracted buyers and then after a year or two went up so high many homeowners couldn’t afford the increase. Now lenders can’t offer short-term rates and lenders are required to have caps on how much the rates can increase. Nevertheless, borrowers still need to be careful when going into a variable rate mortgage, since not knowing what your mortgage rate will be down the road is still a risk.

Most real estate economists still think that home prices will come down by the end of the year because of the higher mortgage interest rates. However, all real estate is local, and Manatee County is such a specialized area with a high percentage of cash buyers, increasing mortgage rates will have less of an effect.

Even if you’re not in the market for a new home, increasing rates influence the entire real estate market. It’s important to pay attention to the rate increases which could at some point have an impact on the value of your home proving the economists right.

At the end of 2021, the average rate on a 30-year, fixed-rate mortgage was 3.1%; by the time this column is in print it could very well be at 6%. It appears mortgage interest rates keep creating new eras every couple of months, enough to make a homebuyer’s head spin.