Mortgage rates dropped over the weekend but have since trended back up. They’re slightly higher today, but are still lower than they were last week. Rates have been volatile recently due to inflation and fears of a recession.
The Federal Reserve has been raising the federal funds rate in an effort to cool price growth, but many now fear that it won’t be able to succeed in doing so without slowing the economy so much it enters a mild recession.
Homebuyers have had a tough couple of years navigating a difficult housing market, first due to rapidly increasing home prices during the pandemic and then, in 2022, rapidly increasing mortgage rates. But as demand cools, those who can still afford to buy might have a little more wiggle room with slightly lower rates and less competition.
“Buyers who have been waiting on the sidelines may see an opportunity to get back into the market as things normalize a bit and volatility wanes,” says Robert Heck, vice president of mortgage at Morty. “While it may take years to play out, the Fed has made it clear that they will continue taking the necessary action to bring down inflation.”
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Are mortgage rates going up?
Mortgage rates started ticking up from historic lows in the second half of 2021 and have increased significantly so far in 2022. More recently, rates have been relatively volatile.
In June, the Consumer Price Index rose by 9.1% year-over-year. The Federal Reserve has been working to get inflation under control, and plans to increase the federal funds target rate three more times this year, following increases in March, May, June, and July.
Though not directly tied to the federal funds rate, mortgage rates are sometimes pushed up as a result of Fed rate hikes and investor expectations of how those hikes will impact the economy. If inflation remains elevated, mortgage rates may stay at their current levels or even trend up. But as a recession becomes more likely, mortgage rates could fall.
What do high rates mean for the housing market?
When mortgage rates go up, home shoppers’ buying power decreases, as more of their anticipated housing budget has to go toward paying interest. If rates get high enough, buyers can get priced out of the market completely, which cools demand and puts downward pressure on home price growth.
However, that doesn’t mean home prices will fall — in fact, they’re expected to rise even more this year, just at a slower pace than what we’ve seen in the past couple of years.
What is a good mortgage rate?
It can be hard to know if a lender is offering you a good rate, which is why it’s so important to get preapproved with multiple mortgage lenders and compare each offer. Apply for preapproval with at least two or three lenders.
Your rate isn’t the only thing that matters. Be sure to compare both what your monthly costs would be as well as your upfront costs, including any lender fees.
Even though mortgage rates are heavily influenced by economic factors that are out of your control, there are some things you can do to help ensure you get a good rate:
Consider fixed vs. adjustable rates. You may be able to get a lower introductory rate with an adjustable-rate mortgage, which can be good if you plan to move before the intro period ends. But a fixed rate could be better if you’re buying a forever home because you won’t risk your rate going up later. Look at the rates your lender offers and weigh your options.Look at your finances. The stronger your financial situation, the lower your mortgage rate should be. Look for ways to boost your credit score or lower your debt-to-income ratio, if necessary. Saving for a higher down payment also helps.Choose the right lender. Each lender charges different mortgage rates. Picking the right one for your financial situation will help you land a good rate.