What Rising Mortgage Rates Mean for Homebuyers — RISMedia
Homeowners spent much of 2020 and 2021 refinancing their current mortgage rates and taking advantage of lower monthly mortgage payments. And who could blame them for the fact that interest rates were just 0.25% at the start of the pandemic, pushing mortgage rates to historic lows?
Even as of December 2020, mortgage rates were still below 3% and homeowners continued to take advantage of refinancing opportunities.
A year later, while mortgage rates are still well below 2019 rates of nearly 6%, we are starting to see 30-year fixed-rate mortgages picking up. According to a recent REALTOR magazine article, the surge is prompting lenders to refocus their attention on homebuyers as refinancing begins to slow.
The article also states that nearly half of the loans packaged in government-guaranteed securities and sold to investors in the third quarter were purchase loans, and home loan financing applications fell 7% — down 22% — in the final weeks of October than at the same time last year when refinancing was still in high demand.
Higher mortgage rates may sound less appealing to homebuyers, but the reality is that the homebuying market is gaining momentum even as 30-year fixed-rate mortgages climb above 3%.
In fact, the third quarter generated $28 billion more in the home buying market than the first half, up 11% year over year.
Why the appeal?
As lenders lose steam with refinancing opportunities, buyers now have the upper hand to negotiate lower interest rates to offset some of the cost hike. Although buyers who are scouting for the right mortgage rate are usually saving money on their mortgage anyway, the slack in refinancing puts them in a particularly advantageous position.
In addition to having more bargaining power, potential buyers are aware that mortgage rates are likely to continue rising, so now is a better time than later to jump on the still relatively low rates available.
For realtors, this is the perfect time to encourage prospective home buyers to “get off the fence” and take advantage of interest rates before they climb back to pre-pandemic numbers, especially now that more inventory is opening in some parts the land – especially for buyers looking for smaller single-family homes or townhouses.
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