Real Estate Trend 2023: Mortgage Interest Rates at an All-Time High

The housing market depends on several factors, including mortgage interest rates. You must be aware that the average mortgage rate has gone through the roof in the past few months. It’s causing a lot of rifts in the real estate market.

After the economy recovered from the effects of the COVID-19 pandemic, the consumers returned to pre-pandemic norms. With more purchasing power and travel affordability, inflation is rising, causing the Federal Reserve to increase interest rates. While the attempt to wind down the soaring inflation with quarterly interest rate increases hasn’t had a lot of luck, the average mortgage rate has reached a sky-level high.

Mortgage rates were at a low percentage after 2021. At the beginning of 2022, the average 15-year mortgage rate was only around 2.8%. However, by October 2022, the real estate market saw a sharp and quick spike. The mortgage interest rate rose to a drastic 6.36%. The shocking part is this is a record-breaking high in the last 15 years. The average 30-year mortgage rate, which was around 3%, also climbed to 7.08% in October.

Fortunately, the worst may be over for mortgage interest rates. Experts are hopeful that since the interest rates have already peaked last year, 2023 would be a cooling-down period. The Freddie Mac Primary Mortgage Market Survey confirms this theory, as the 30-year mortgage rate in February 2023 is at 6.32%. The 15-year mortgage rate also witnessed a downfall to 5.51%. While the rates are still high, they are still down from the great 15-year all-time high of October 2022.

However, some experts believe that the rates will continue to increase until inflation is under control.

So in this blog, let’s understand the impact of inflation-led high mortgage rates on the real estate market.

The Impact of Increasing Mortgage Interest Rates on the Real Estate Market

How Do High Mortgage Interest Rates Impact Real Estate Buyers?

Here’s what high mortgage rates mean for buyers –

1. Decreased Purchasing Power

Most buyers look for affordable financing options to buy a new home. However, with high mortgage interest rates, buyers will refrain from getting large loans. It would impact their ability to buy a home in their set price range. So it will come down to choosing between settling for a less expensive home or taking on a larger down payment.

2. Higher Mortgage Payments

If you decide to take a loan to buy your dream home, the high mortgage interest rates will increase the cost of borrowing money. It will result in  higher monthly mortgage payments.

Home buyers who go on with high mortgage payments will end up putting stress on their financial budgets. Just like that, your dream home will become a burden on you and your family.

3. Longer Loan Repayments

If you take a loan in this high mortgage interest rate scenario, it will take you a relatively long time to pay off your loan. You see,  a large part of your payment will go towards paying off the interest rather than the principal loan amount. So homebuyers will have to make payments for a long time.

It can have a significant impact on your future financial planning. Therefore, before you take a loan with a high mortgage interest rate, calculate the total interest costs.

One piece of advice for homebuyers with high mortgage interest rates is to not hurry to buy a house. The market is not preferable for buyers, so if you can wait out the period, it will be beneficial for you. If not, get in touch with a professional real estate agent who can help you navigate the market in such a complicated scenario.

How Do High Mortgage Interest Rates Impact Real Estate Sellers?

Here’s what high mortgage rates mean for sellers –

1. Fewer Interested Buyers

High mortgage interest will demotivate buyers to buy homes. They may postpone their decision to buy a home or reconsider their budget and financial plans. As a result, your ‘for-sell’ board may be out in the sun for a longer period than you imagined.

2. You May Have to Adjust on Selling Price

The real estate market is in the middle of several overlapping trends. On one hand, the housing inventory is running low, which is pushing up the demand and rising housing prices. However, on the other hand, the high mortgage interest rate is causing homebuyers to reanalyze their decisions.

Therefore, it is challenging to predict to the real estate experts how it will go on the pricing end. However, the chances are, the bubble of high selling prices will burst at a point. When that happens, sellers will have to lower their house offers.

In Closing

Mortgage interest rates on a rise are never ideal. However, if you have your finances in order, it will be easier for you to qualify for a loan.

The best way to deal with all these real estate market challenges is to let an experienced real estate professional help you. They can understand the implications of these trends and navigate you through the market more effectively.

For more hot real estate market trends and insights in 2023, keep following ZipperAgent’s blog space.