Mortgage rates have been kept artificially low by the Federal Reserve since the Great Recession in 2010. There is a whole generation of people who have never known what might be called normal mortgage rates. And then, most of the rest of the adults in America have forgotten what average rates were in the 60’s, 70’s, and especially, in the 80’s when they hit 18.45%.
The bottom of the market was February 2021 with 30-year fixed rates were 2.73%. Current rates, as of February 10th, according to Freddie Mac, are at 3.69%. Earlier predictions by NAR, FNMA, Freddie Mac, and MBA were that rates would go as high as 4.00% by the end of the year.
Those estimates may be considered low now based on concerns about inflation and the federal government’s efforts to keep it under control. The Fed has announced a series of policy rate increases for the balance of the year. Mortgage lenders, in anticipation of the rate hikes, have already started raising their rates as evidenced in the rates since January 3, 2022.
It is possible that a year from now, 30-year fixed rates could be at 5% or above. This could make a significant difference in a buyer’s payments especially compounded with rising prices.
A $450,000 purchase price today with a 90% fixed-rate 30-year mortgage at 3.69% has a principal and interest payment of $1,862 a month. If things continue to heat up and the mortgage rate goes up by one percent while the price increases by ten percent, a year from now, the home will cost $495,000 and the payment would be $446 higher each month for the term of the mortgage.
Use the cost of waiting to buy to make projections on the price home you want to buy based on your own estimate of what interest rate and appreciation will do in the next year.
Acting now causes the payment to get locked in at the lower rate and the increase in value belongs to the buyer as equity build-up. Unfortunately, with the current state of supply and demand on housing inventory, waiting to purchase moves the bar higher and higher until some buyers will not qualify.