It hasn’t been a fun year for homebuyers. And that may not change anytime soon.
Mortgage rates have risen steadily for the past year, and they’re now reaching their highest level in 22 years. The average rate for a 30-year fixed mortgage hit 7.31% this week, according to CNET sister site Bankrate. The government-sponsored Freddie Mac put the average at 7.09%.
Late last year, mortgage rates topped 7%, pushing monthly payments into unaffordable territory for many prospective buyers. Though average rates fell to close to 6% in January, a combination of stubborn inflation and ongoing interest rate hikes from the Federal Reserve put an upward pressure on mortgage rates.
The big question facing economists and housing market experts is whether there’ll be any relief in 2023, or if rates will continue inching toward 8%. Though mortgage rates are unlikely to dive down to the record lows during the pandemic -- when many homebuyers locked in mortgage rates between 2% and 3% -- a lot will hinge on what happens at the next Federal Reserve meeting on Sept. 20.
“Rates are going to continue to teeter-totter,” said Jennifer Beeston, senior vice president at Guaranteed Rate, a national mortgage lender.
And that’s not all. Home prices are still high, affecting the total cost to purchase a house. If mortgage rates remain intractable, that could mean a continued slowdown in home sales and an inflexible shortage of available homes.
Though there’s no way to truly predict what could happen with the housing market and the economy, it’s a good time to evaluate your budget and your housing needs and expectations.
Mortgage rates change every day. Experts recommend shopping around to make sure you’re getting the lowest rate. By entering your information below, you can get a custom quote from one of CNET’s partner lenders.
About these rates: Like CNET, Bankrate is owned by Red Ventures. This tool features partner rates from lenders that you can use when comparing multiple mortgage rates.
Why are mortgage rates so high right now?
The surge in mortgage rates over the past year is due to a variety of economic factors, including soaring inflation rates. The Fed moved in to tackle inflationary pressures with an aggressive rate hike policy, implementing several increases to the federal funds rate to try to slow down the economy. Though the Fed doesn’t directly set mortgage rates, the federal funds rate and mortgage usually move in the same direction.
A combination of high prices and rate hikes was a double whammy for home loan rates. Though inflation has slowed -- July’s inflation report showed 3.2% year over year, significantly lower than the peak at 9.1% in June 2022 -- it’s still too high for comfort. The Federal Reserve has an annual target rate of 2% for inflation.
Historical 30-year mortgage rate trends
Mortgage rates go up and down on a daily basis. Though today’s mortgage rates seem staggeringly high, mortgage rates reached as high as 18% in the 1980s. Still, buying a home 40 years ago was easier and more affordable than it is now. Home prices just weren’t as high back then relative to income levels, and wages haven’t kept up with the market. Take a look at historical mortgage rate trends going back to the 1970s.
What this means for today’s homebuyers
No matter what’s happening in the markets, people will always need to buy homes, and you might be one of them. Though the headlines may be concerning, making the right home buying decision ultimately comes down to your individual needs and financial situation.
Don’t time the market: Regardless of what mortgage rates and home prices are doing, experts recommend against trying to time the market. If you’re ready to buy and can get a good deal on a property that fits your needs, it might not be worth waiting. Plus, if rates drop in the future, you can always refinance for a new rate.
Don’t rush: But with rates and home prices being high, it might not be the right time for you to buy a house -- and that’s OK. Instead, focus on what you can control: saving for your future down payment, improving your credit score and setting a realistic home buying budget.
Stay within your budget: Making a budget and sticking to it is one of the most timeless pieces of financial advice you’ll hear, but it’s particularly important for potential homebuyers. With a budget, you can get a good idea of how comfortable you are with all the expenses that come with buying a home. Experts recommend you pay close attention to how you can factor a monthly mortgage payment into your budget. Don’t forget those closing costs either.
Shop around: Take the time to shop around for different lenders to see who can offer you the best rate. When choosing a lender, you want someone who understands your financial picture as well as your goals.
Monitor rates: Mortgage rates change on a daily and even hourly basis, so it’s important to keep your finger on the pulse. “Buyers need to be hypervigilant when it comes to checking rates,” Beeston said. Ask your lender if they can lock in your rate while you shop to help you avoid any market volatility.
