As we approach the end of the year, potential homebuyers are faced with a critical decision. Should they lock in their mortgage rate now or wait until after the next Federal Reserve meeting? According to financial experts, the answer is clear – act now.
The Federal Reserve held interest rates steady at its last meeting, keeping benchmark borrowing costs between 5.25 and 5.5 percent. However, economists are increasingly convinced the central bank will hike rates by a quarter percentage point before the year ends.
This move is aimed at curbing inflation, and once implemented, rates are likely to remain high for some time.
3 YEARS AGO:
– Gas was $2 a gallon
– Eggs were $1 a dozen
– Mortgage rates were 3%
– Inflation was less than 1%
– We had full employment
– & the World was at peace
– Gas is over $4 a gallon
– Eggs are over $4 a… pic.twitter.com/KMJDPnvB7C
— 𝐓𝐡𝐞 𝐀𝐫𝐭 𝐨𝐟 𝐏𝐮𝐫𝐩𝐨𝐬𝐞 🇺🇸 (@creation247) October 8, 2023
While the Federal Reserve does not directly control mortgage rates, its actions significantly influence the real estate market.
The average 30-year fixed-rate mortgage has already soared to 7.49 percent, according to data from Freddie Mac. If the Fed decides to increase rates, this figure could surge even higher in the coming months.
The volatility of mortgage rates has been a hot topic since the Fed began hiking interest rates in March 2022. Deals on a 30-year fixed-rate mortgage are not tied directly to the Fed’s funds rate but are influenced by the yield on 10-year Treasury bonds.
These yields are affected by factors such as inflation, Fed actions, and investor responses.
Financial expert Andrew Lokenauth advises potential homebuyers to lock in a fixed rate now. He warns the Fed’s actions will trickle down to consumers, leading to higher interest rates. He also predicts interest rates will continue to rise this year and possibly into the next, leveling off only around 2025.
Mortgage purchase applications in the US have fallen to their lowest level since 1995. The average American household simply cannot afford the average home price at current mortgage rates (7.7% for 30-year fixed). pic.twitter.com/DHWzlXUiOw
— Charlie Bilello (@charliebilello) October 4, 2023
Lokenauth also suggests Americans should consider their options carefully. If you lock in a deal today and rates go down, you can always refinance. Conversely, if rates go up, you’ve secured a good deal and can save significantly.
Another factor contributing to higher mortgage rates is the current shortage of homes for sale. Homeowners who are locked into cheap mortgages of 2 or 3 percent are refraining from selling, which restricts housing supply and pushes up property prices.
This situation is likely to keep mortgage rates high for longer.
Jeff Scott, from First Option Mortgage in Atlanta, Georgia, also advises homebuyers to lock in at the current rate. He points out the massive supply and demand issue gives buyers more power when negotiating a deal. Sellers are offering more concessions to buyers so they can buy-down rates, which can save thousands on loan repayments.
With the looming possibility of further interest rate hikes, it would be prudent for potential homebuyers to lock in their mortgage rates now. Waiting could lead to higher costs down the line, making homeownership less affordable.