A typical house hunter who began looking in July and closed on their home in September saw their potential mortgage rates fluctuate by approximately half a percentage point every four week, according to a new report of Redfin ( Redfin.com), a technology-powered realty brokerage. This is the most volatile period in three months since 1987 when mortgage rates surged after soaring to an all-time high of almost 19% earlier in the decade. The Fed was working to curb severe inflation.
This could be a good deal for a house hunter who is looking to purchase a home worth $500,000:
- They expected their monthly payment of $3,051 when they began looking in July. This amounts to $1.098million over 30 years, with a 20% downpayment and the 5.7% mortgage interest rate. 435,777 of that total payment is interest.
- They expected to pay $2,874 per month when they bought their dream home in August. This amounts to $1.035million over 30 years, with a 20% downpayment and a 4.99% mortgage rate. Interest is the largest component of that $372,143 total payment.
- Their final monthly payment was $3,202 after they had locked in a mortgage rate in September. This amounts to $1.153million over 30 years, with a 20% downpayment and the current 6.29% mortgage interest rate. 490,382 of that total payment is interest.
- The buyer’s expected total payment fell by $64,000 (5.8%), but then rose by $118,000 (11.4%) between July and August.
Taylor Marr, Redfin’s Deputy Chief Economist, stated that the challenges facing homebuyers today go beyond the declining affordability due to high mortgage rates and high home prices. It is extremely difficult to plan ahead due to the whiplash in mortgage rates that occurs between when homebuyers decide on their budget and when they make an offering.
The Federal Reserve has been increasing interest rates to reduce sky-high inflation, which is why mortgage rates are fluctuating. Last week, the Fed increased interest rates by three quarters of an percentage point to a range between 3% and 3.25%. This was its third major hike in a row. They also predicted that they would reach 4.4% by year’s end. Freddie Mac’s weekly data shows mortgage rates at 6.29%, the highest since 2008. However, a separate daily gauge shows them at 7.08%.
As the Fed tries to reduce inflation, volatility in mortgage rates is likely to continue for the near future. However, mortgage rates should fall within the next 12-18 months if inflation eases, according to Justin Dimler, Redfin’s mortgage company Bay Equity.
Dimler, who is a regional sales manager at Bay Equity Seattle, said that “the good news for those people who can afford to purchase a home” and could refinance to a lower interest rate within a year or so. I advise house hunters who were approved for a loan a few months ago to have their mortgage advisor requalify them. The change in mortgage rates could mean that they are no longer eligible to borrow the same amount.
Refinancing is a possibility for homeowners in the near future, but buyers should be aware of the potential costs.