The turbulent rate outlook is continuing
Mortgage rates across the US remain on an unsteady and unpredictable path – and greater homebuyer confidence is unlikely to emerge until that bumpy road smooths out, according to a leading originator.
Last week saw rates tick above 7% for the first time in a month, jumping 10 basis points in the week ended April 5 and weighing down on mortgage applications and home sales.
Rebecca Richardson (pictured), the Charlotte, NC-based “Mortgage Mentor” with Kind Lending, told Mortgage Professional America that the recent turbulence was continuing to spill over into homebuyer sentiment.
“I would say that there is still some unease because of rates fluctuating,” she said. “I think when we kind of settle into a range, then it’s like, ‘OK, this is the new normal – this is what we’re doing.’ But weeks like this week, when it goes a little bonkers, really rattle everyone – not just the buyers, but the lenders, which will trickle out to buyers and realtors.”
That’s not to say homebuyers have flocked away from the market, with activity still robust and plenty of interest in listed properties. But high rates and elevated borrowing costs mean some prospective buyers are disillusioned with the type of home they’re currently qualifying for.
“Some people want to buy a house and it’s like, ‘Oh man, that’s the payment, that’s the rate,’ and even if they qualify for it, there’s kind of this disconnect of, ‘I’m spending this much – I feel like I should be getting more for it,’” Richardson said.
“And so we see a longer sales cycle or people fall off. They disqualify themselves because they’re like, ‘I thought I was ready, but not at that price.’ Homes are still moving – but I think there’s some balance because sellers know that people aren’t just completely [convinced] because of the affordability pauses or questions.”
Despite the absence of anticipated drops in mortgage rates in 2024, Melissa Cohn from William Raveis Mortgage suggests that buyers are adjusting to the "new normal" of rates around 6.5%.https://t.co/xSYYujTaAh#mortgageindustry #mortgagerates #houseprices #borrowers
— Mortgage Professional America Magazine (@MPAMagazineUS) April 10, 2024
Why borrowers should act early to optimize their homebuying plans
Richardson said her current advice to clients is focused on the need to start earlier than they think they should in getting their homebuying plans in place, an approach that emphasizes being proactive rather than reactive.
“I think starting early, even up to a year before you want to buy, lets us go through this logically – because a big part of this is numbers,” she said.
“Let’s go through that when the pressure is not on, make sure buyers have a really strong foundation so they can feel confident in the decisions that you’re making versus just trying to pick the option that feels or sounds the best. It makes a big difference – early preparation is the best thing.”
Focusing on interest rates not the be-all and end-all
It’s also essential not to pay undue attention to rates and where they’re headed, she emphasized, at the expense of a sound overall approach to securing the right property and the right mortgage.
“It comes back to being very focused on the rate instead of the overall strategy and the overall costs,” she said. “When everything is a complex decision, that’s the easiest thing – ‘let me just get the lowest rate.’ The lowest rate may be the more expensive option because you’re getting bad advice or you’re paying a lot for the rate.”
Still, rates starting to come down again would undoubtedly buoy homebuyers who’ve been put off by the high-borrowing-cost environment of the past 18 months, Richardson said.
The Federal Reserve is widely expected to bring rates lower at some point this year, although it has remained non-committal on a precise timeline for rate cuts.
“That plays a huge role – to see a seven handle on the rate instead of a six,” she explained, “even if there’s more competition, even if maybe there’s not as many seller concessions or things like that. I think people get really zeroed in on the rate and emotionally tied to that rate.
“It’s a personal decision – there is an emotional factor to it. But this is also a business decision, and it’s very hard to separate the two – particularly if you’re a first-time homebuyer.”
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