Economist notes mortgage rates will remain high for a few more months
Home sales have decreased from last year with interest rates on the rise. Reluctance has been observed among sellers who locked in low rates during the COVID-19 pandemic as they fear not being able to find a comparable rate when they become buyers.
According to a New York Times report, mortgage rates are at a 22-year high, and home buyers face an average rate of 7.23% on a 30-year fixed-rate mortgage, the highest since 2001.
Melissa Cohn, regional vice president of real-estate lender William Raveis Mortgage, told The New York Times there are a number of factors that influence mortgage rates, the biggest driver being the bond market. “We have a much more complicated economy,” Cohn noted.
The yield on a 10-year Treasury note recently hit its highest point since 2007, reaching a rate of 4.3%. With the increase, the Federal Reserve then sets short-term interest rates alongside expectations on yields for longer-term bonds.
If inflation is high, the Federal Reserve will raise short-term rates to slow the economy as well as control prices. The higher interest rates make it more expensive for banks to borrow, and so the rates on consumer loans and mortgages increase.
A robust economy could affect rates the same way. With more money to spend, demand for mortgages increase and so the rates also go up. Lenders would pool their mortgages into a portfolio and offer these mortgage-backed securities, which are similar to bonds, to investors. The Federal Reserve has acknowledged the potential economic costs of raising rates.
According to economists, mortgage rates will likely remain high for a few more months. As they creep down, the rates are expected to settle well above previous 3% rates.
Lawrence Yun, chief economist at the National Association of Realtors, said he expects the rates to begin decreasing by the end of the year, noting the Federal Reserve has already slowed its interest rate increases. The Mortgage Bankers Association, an industry group, forecasts the average 30-year mortgage rate will decrease to 5% by the fourth quarter of next year.
To be able to nab a lower rate, Cohn noted a strong credit rating is essential as well as a sizable down payment, which is usually 20% of the purchase price. “Rates should be lower in the next 12 to 24 months,” Cohn said. She also advised consumers to compare rates from multiple lenders.
