Current Interest Rates and How Some Buyers are Benefiting

With current mortgage rates hovering around 7%, we are all wondering about the Federal Reserve’s next move. 

With the Fed’s interest rate increase to bring down inflation, house prices have been impeded. Additionally, many builders have slowed down production.

What does this mean for the market?

Current Mortgage Rates

As of October 20, 2022, according to Freddie Mac data, the 30-year fixed-rate mortgages remain just under 7%.

Freddie Mac reports the 30-year fixed-rate mortgage at 6.94% and the 15-year fixed-rate mortgage at 6.23%, both up slightly from last week.

The 5/1-year ARM dropped marginally from last week, landing at 5.71%.

When the Federal Reserve raises the federal funds rate, as they have several times this year, the increase causes banks to raise the interest they charge homebuyers. 

Where are Mortgage Rates Headed?

Rates are presumed to stay around 7% until The Fed’s meeting next month; however, it is unclear if rates will be raised again.

The Federal Funds rate is currently 3.08%. The anticipated forecast is an increase in the federal funds rate, closer to 4.0%, by the end of the year.  

The Federal Reserve kept interest rates historically low for a few years. These low-interest rates resulted in many borrowers qualifying for a loan, which helped keep the housing market hot.

Throughout the pandemic, large populations fled the cities and bought homes in less metropolitan areas for many reasons. Primarily the exodus was due to the fear of the pandemic and the fact many people could work from home. 

During the country-wide lockdowns, supply chain issues began; this made it incredibly difficult for builders to have the resources or workforce to build new homes. Exorbitant house prices happen when a low housing inventory is paired with high demand and low-interest rates. 

Now, in an attempt to lower inflation, the Fed is assertively raising rates.

Because of all this, homes are now sitting on the market longer, and sellers are beginning to lower the asking prices of their homes.

It makes logical sense the housing market is seeing a slowdown while mortgage rates rise. 

How Some Buyers are Benefiting Right Now

There are some significant benefits to buying when interest rates are higher.

Less Bidding Wars

The past two years have seen historically low-interest rates.

The last two years have also seen multiple offers well over the asking price, resulting in bidding wars and buyers waiving necessary contingencies that many have regretted once settled in their new homes. 

Higher interest rates have rectified this issue by reducing the number of buyers who can qualify for a loan; this has easily reduced buyer competition. 

Buyers are regaining their power in the market.

More Inventory

Higher interest rates have priced many buyers out of the market, and inventory has increased - this means there is more inventory to choose from and less competition for qualified homebuyers. 

Although homes are still selling at a good pace, we are seeing them sit on the market longer than before interest rates began their hike; this is a good thing for buyers. Sellers are still selling, which is a good thing for them.

Contingencies Have Returned

Because of buyer competition over the past two years, many buyers were waiving contingencies to have a chance at securing a home. 

Appraisals and inspections were waived in order to have an offer stand out. Waiving these contingencies adds considerable risk to homebuyers. 

With the housing market balancing itself, inspections and appraisal contingencies are back as a regular part of the home sale.

The Bottom Line

Yes, it is stressful watching interest rates increase. However, lower housing prices, more inventory, less competition, and buyer power have emerged in the market, and these are all critical components of a worthwhile purchase. 

We will not see a market with low-interest rates, tons of inventory, and no competition. 

The housing market always has and will always see ebbs and flows. The time to buy or sell is when the current housing market is ideal for your unique situation.

If you have any questions about buying or selling or just want to chat about the market, we would love to hear from you!