The week ending April 7, 2022, again saw rising mortgage rates. Freddie Mac reported the 30-year fixed-rate mortgage rose to 4.72%, from 4.67% the week before. At this time last year, the average rate was 3.13%.
the fastest three-month rise in mortgage rates since 1994
Freddie Mac Chief Economist Sam Khater said, “Mortgage rates have increased 1.5 percentage points over the last three months alone, the fastest three-month rise since May of 1994.”
Khater also stated, “The increase in mortgage rates has softened purchase activity such that the monthly payment for those looking to buy a home has risen by at least 20 percent from a year ago."
Higher Mortgage Rates Shut Out Many First-Time Homebuyers
Soaring sale prices and higher loan costs are quickly shutting out some homebuyers. With interest rates at their highest since December 2018, borrowing costs have become so substantial that applications to purchase homes with the Federal Housing Administration (FHA), which many first-time homebuyers take advantage of, were reported to be down 17% from a year ago. VA purchase applications dropped 6% year-over-year at the end of March 2022.
According to the Mortgage Bankers Association (MBA), in the week ending April 1, 2022, the total mortgage application volume was down 6.3% from the previous week.
With record-high home prices and limited inventory, it was already challenging for first-time homebuyers. January 2022 data from the National Association of Realtors (NAR) shows sales from first-time homebuyers fell from 33% a year ago to 27%. Now, add in climbing interest rates and many investors snatching up homes with all-cash purchases; many homebuyers feel despair.
Home Prices Not Expected to Drop in 2022
If you are holding your breath in anticipation of home sale prices declining, you should probably exhale now. Most experts are predicting the market to remain strong in 2022. Low supply and high demand continue to drive the market. A balanced market is about six months of supply; today’s market is at 1.7 months.
Unlike the 2008 housing crash, which included many borrowers receiving “no-doc loans,” this time around, lenders enforced strict financial and down payment requirements, leading many experts to believe there will not be a surplus of foreclosures that would lead to more supply.
With low supply and high demand, few foreclosures, and interest rates, although rising still hovering around 5%, our seller’s market is expected to continue.
Rising Interest Rates: Is it Cheaper to Buy Than Rent?
Although the main focus has been on the rise in mortgage rates over the last few weeks, let us not forget the rapid increase in rent.
A Redfin report published earlier this year looked at the 50 most populous U.S. cities and found a rent increase of over 14% since 2021. Redfin reports the average monthly U.S. rent at $1,877. Rent.com March 2022 data reflects a 21.8% year-over-year increase in two-bedroom rentals leasing at $1,997 a month.
Redfin Chief Economist Daryl Fairweather said, “The growth in mortgage payments has been driven by both climbing prices and climbing mortgage rates . . . . and those rising mortgage costs push more potential homebuyers into renting instead, which pushes up demand and prices for rentals. Mortgage rate increases are accelerating, which will cause both mortgage payments and rent to grow throughout 2022.”
Making a Decision Before Mortgage Rates Rise Further
The decision to buy or rent depends on various personal factors, such as how long you plan on living in the area and your finances. However, for those considering purchasing, with the expected continual rise of mortgage rates, you are more likely to find something closer to your price range now than later in the year.
If you are considering buying or selling a home in Northern Virginia or the D.C. area, contact a Glass House Real Estate agent and see how we can help!
