Quarterly Mortgage Rate Forecast – Forbes Advisor

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Mortgage rates jumped at a record pace this spring, rising from 3.76% in early March to 5.81% in late June. And while rates have fallen slightly since then, some experts say it could continue to rise in the months ahead.

Not only are mortgage rates rising, but house prices are also rising. Home prices in the United States jumped 18.7% between the first quarter of 2021 and the first quarter of 2022, according to the latest house price index from the Federal Housing Finance Agency (FHFA). As inflation persists, mortgage and house prices will continue to rise.

Mortgage rate forecasts for the coming months

Mortgage rates are the highest they’ve been in 10 years, and most third quarter forecasts are in the mid-5% range.

“Borrowers are finally taking a break now that rates have come down measurably. . . although it’s unclear if that means we’re past the peak or just getting a temporary reprieve, like late February,” says Jeff Tucker, senior economist at Zillow.

Tucker expects rates to stay within the 5% to 6% range this year.

Lawrence Yun, chief economist for the National Association of Realtors (NAR), predicts rates will rise by around 5.3% to 5.7% this summer.

“Most of the mortgage rate gains may have already happened even as the Federal Reserve plans many more near-term rate hikes,” Yun said. “Mortgage rates, in essence, have already priced in the expected Fed moves.”

But Ali Wolf, chief economist at Zonda, a homebuilding real estate technology company, warns rates could climb depending on what happens with incoming economic data.

“Inflationary pressures and the anticipation of Federal Reserve rate hikes were the main drivers of rising mortgage rates,” Wolf said. “If inflation shows little sign of easing or if the Federal Reserve somehow delivers a policy shock, we could see interest rates jump.”

Higher mortgage rates are pissing off buyers and sellers

Mortgage rates are more than two percentage points higher in July than at the start of the year. The average 30-year fixed-rate mortgage was 5.3% at the start of July, down from 3.22% in the first week of January, according to Freddie Mac. At the same time, inventory is falling well below demand, pushing up house prices.

For example, the monthly payment for a $400,000 30-year mortgage with an average interest rate of 3.22% – in the first week of January 2022 – would be approximately $1,734 per month. (excluding taxes, down payment and other housing costs). Currently, the same house with a current average rate of 5.3% would cost $2,221 per month, a price increase of $487.

“Rising mortgage rates are compounding the affordability problems that have been caused by record home value growth,” Tucker said. “Many potential buyers will have to make more compromises to afford a home, but they will continue to move forward despite higher borrowing costs. For example, they will have to buy in another neighborhood or another city, or they will buy a townhouse instead of a single family home.

If rising rates push enough buyers out of the race, then this slack demand is a major drag on price growth and competition. Likewise, as the cost of silver rises, investors may also pull out, which means even less competition for buyers.

“Sellers may need to consider price reductions if buyer interest wanes,” says Steve Reich, chief operating officer at Finance of America Mortgage. “It can give homebuyers a window of opportunity to act. Remember, we are heading into the busy summer home sales season, when home prices are generally at their highest and demand is still relatively strong in sought-after areas.

How Homebuyers Can Deal With Higher Mortgage Rates

Lenders consider several factors when deciding whether to approve a home loan application, including borrowers’ income and debt as well as housing costs, which include home price and interest rate. .

As mortgage rates rise, monthly housing costs are getting higher, making it increasingly difficult for buyers to get approval for homes in the same price range they were looking for last year . Many people will either have to look in a more affordable area, offer a larger down payment, or look for homes in a lower price range to fit their budget.

Related: Mortgage Application Denied? Here’s what to do

Another option is to get a 5 year variable rate mortgage which often offers a lower interest rate than 30 or 15 year fixed mortgages. However, buyers should be aware that these 5/1 ARMs reset after five years, which means that if interest rates rise, your mortgage rate will also become more expensive. Of course, the opposite is also true; if rates go down, your loan could become cheaper.

Many borrowers choose to refinance to a fixed rate mortgage before their 5/1 ARM goes into its adjustable period.

“Some fringe buyers have already been locked out of home ownership due to rising mortgage rates and the resulting impact on the monthly mortgage payment. Other buyers will find that they may need to spend more of their income on housing than they originally anticipated,” says Wolf. “There are already signs that more and more buyers are scrambling to buy a home in today’s market.”

Be careful when refinancing in today’s higher rate environment

For most homeowners, refinancing their mortgage is not a financially savvy option as rates have soared more than 5%. This means that borrowers will have to find other ways to access equity through home equity lines of credit (HELOCs) or home equity loans (HELs).

HELOCs and HELs are generally cheaper than credit card interest rates, so these types of loans may be more cost-effective for people who want to consolidate debt or need access to credit to a major purchase.

However, equity loans carry substantial risk because they use your home as collateral. Borrowers should make sure they can repay the loan before spending the money, as this is a second mortgage on your home.

“The key to using a second mortgage effectively is to borrow only what you need, have a clear plan for paying off the loan, and use the money to improve your financial situation,” says Reich.

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