How Mortgage Rates Are Affecting Buying: What You Need To Know
Aug 16, 2022

If you’re in the market to buy a home, you’re likely keeping an eye on mortgage rates. Rates have been on the rise lately, and it’s essential to understand how this is affecting buying behavior. In this article, we’ll discuss the impact of rising mortgage rates on real estate purchases. We’ll also provide some tips for buyers trying to navigate these turbulent waters. So if you’re curious about how mortgage rates affect buying, read on!

The sale of homes is being affected not only by the limited number of homes for sale but also by the continuous price increases, and to this, we must add the increase in mortgage rates. New home sales fell 12.6 percent in March compared to March 2021, according to the Census Bureau, according to an article in The Washington Post.

According to the National Association of Realtors (NAR), this article explains that existing home sales fell 4.5 percent year over year in March, according to the National Association of Realtors (NAR). Pending sales, which refer to sign contracts that have yet to be settled, fell 8.2 percent in March compared to a year earlier, according to the NAR.

How Are Mortgage Interest Rates Determined?

Many factors determine mortgage interest rates, but the main one is the yield on the US Treasury note of the same maturity as the mortgage. This is because lenders need to be compensated for taking on that risk when they lend money. And since US Treasuries are considered some of the safest investments in the world, they used them as a benchmark.

Other factors influencing mortgage rates are inflation, the Federal Reserve’s monetary policy, and global economic conditions. Inflation is crucial because it erodes the purchasing power of money over time. So, when inflation is higher, lenders need to charge higher interest rates to compensate for this purchasing power loss.

The Federal Reserve’s monetary policy can also influence mortgage rates. The Fed uses tools like interest rate changes to achieve its economic goals. When the Fed raises rates, it usually leads to higher mortgage rates. And finally, global economic conditions are essential because they can impact the US economy and, in turn, mortgage rates.

What Does This Mean for Buyers?

The rise in mortgage rates makes it more difficult for buyers to afford a home. According to real estate website Redfin, the number of homes sold in the US fell 12% in March compared to a year earlier. And this trend is expected to continue in the coming months.

Redfin also reports that the median home price in the US rose to a record high of $340,000 in March. This increase is being driven by a combination of solid demand and low supply. The number of homes for sale is still below pre-pandemic levels, and many buyers compete for a limited number of properties.

If you’re planning on buying a home shortly, it’s essential to be aware of these trends. You may need to adjust your budget or consider a different property type. For example, you may want to look into fixer-uppers that you can renovate to your liking. Or you may decide to wait until the housing market cools off a bit before making your purchase.

Whatever you decide, be sure to work with an experienced real estate agent who can help you navigate these waters. They’ll be able to provide you with up-to-date information on the market and guide you through the homebuying process.

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