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Mortgage Rate Roller Coaster: What’s Going on in the Real Estate Industry?

By Catherine Tims | February 15, 2023

If you’ve been watching the housing markets lately, you’ve noticed a startling trend: mortgage rates have been rising seemingly out of control over the past few months. But what, exactly, is going on? Where have these rate hikes come from, and what do they mean for the larger real estate industry in general? Here’s what you should know about these roller coaster times we’ve been living through.

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“Through the Roof” isn’t Hyperbole

To be sure, home lending rates are in more than a bit of a shambles at this point in 2023. Forbes reports that in February of this year, the average 30-year fixed mortgage carries an interest rate of 6.74 percent. That’s almost twice what it was in early 2022, when 30-year fixes were going for an average of just 3.22 percent. 15-year fixed-rate mortgage rates are up even further proportionally, with 2022’s average 2.43 percent giving way to a massive 6.01 percent. 

The primary driver for these huge jumps in mortgage rates has, of course, been the US Federal Reserve. The Fed’s job is to restrain inflation when it can, and the US central banking institution has been on its own crusade to curb inflation by raising the base interest rate since March of 2022. The latest increase took place in early February, hiking the new rate by an additional 25 basis points into the 4.50 to 4.75 percent range - and the Fed says while new increases this year will be smaller in scale, they will likely continue to come. This means that current mortgage rates may go through some more modest increases in the very near future.

How the Housing Markets Have Reacted

Banks and other lenders hiking their mortgage lending rates in order to remain profitable has had a major impact on the real estate industry in general. However, much of this reaction is split among different markets with different adjacent economic conditions, all of which also have a major influence on how one market performs versus another. In general, data from Black Knight shows there had been around a 5.3 percent decline in housing prices across the continent in December 2022.

Some of the biggest price drops, according to Black Knight, have come in markets that were exhibiting major growth previous to the mortgage rate hikes. Popular West Coast cities like San Francisco and San Jose, home to some of the most in-demand real estate in the world, saw average price drops of more than 10 percent from their high-water points in 2022. Locales that saw an influx of activity in the wake of the pandemic like Seattle and Phoenix also experienced a similar drop in home prices. Even the NYC metro area, home to some of the most expensive real estate on the planet, saw a 1.3 percent decline in property prices last year.

A Double-Edged Sword

Such a significant property price drop across the country often spells good news for buyers looking to maximize their ability to purchase new homes, especially as 2022’s historic highs threatened to price buyers with shallower pockets out of the running in many markets. Yet the problem is that the mortgage rate hikes that likely influenced these large price drops can also have a negative impact on the ability of these same buyers to secure home loans large enough to afford properties even at these discounted prices.

The problem is that mortgages with higher interest rates are more expensive to repay than those with more attractive ones. This drives up the cost of home ownership in the long run for anyone taking out a high-rate mortgage, somewhat erasing the cost savings over time. Additionally, banks and other lenders tend to increase their qualifying requirements for large-scale lending like mortgages in times of economic uncertainty to ensure their borrowers will be able to repay these loans without issue, and that can similarly restrict access to lending for house hunters looking to capitalize on any price drops in the housing industry.

An Uncertain Future

For anyone thinking of buying a home in this volatile economic landscape, the decision can be a difficult one to be sure. Taking out a mortgage now, when interest rates are high, represents some unwanted costs that you’ll be paying for years or even decades to come unless you refinance sometime in the future. Meanwhile, waiting to see if those rates drop in the near future could backfire when the Fed chooses to institute more increases to the base rate to further slow inflation. This leads to a situation where borrowers could end up with an even worse interest rate down the road.

Yet in the longer term, there are some analysts who predict that interest rates will level off or even slightly decline from their current highs. The Mortgage Bankers Association, for example, predicts that by the end of the year rates on home loans will decline to 5.7 percent, which is much more manageable than their current 6.74 percent high. They’re not alone, with Redfin likewise forecasting interest rates to drop, though not as precipitously, to anywhere between 5.8 to 6.1 percent. Whether these predictions turn out to be accurate is yet to be determined, of course, which is why they’re forecasts. 

The Last Word on 2023’s Mortgage Rates

So what’s a smart home buyer to do? It might be tempting to seek out a mortgage immediately so as to avoid any more rate increases as tied to the Federal Reserve. Meanwhile, it might be more prudent to ride out 2023 and wait for rates to decline slightly, though this isn’t always an option for some house hunters. Plus, there’s no guarantee that rates will drop as far as industry experts predict they will.

Either way, it’s clear that at this period in time such high interest rates on home lending products are unlikely to last forever. Rate hikes will slow down or stop, and the overall real estate market will finish correcting. Whether that will be by the end of 2023 or later is what’s uncertain at the moment. Until that time, however, it may very well be beneficial for motivated house hunters to secure a mortgage sooner rather than later, before the Fed raises rates even higher, while those with more time on their hands ride out the markets until a later date.

Realty Biz News Contributor at Realty Biz News
Catherine covers a broad spectrum of niches: personal finance, mortgages, travel, housing, internet marketing, network marketing, marketing, and business. Catherine is a Realty Biz News Contributor
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