The Charlotte, NC, real estate market has always been subject to fluctuations, but in recent times, one particular factor has sent shockwaves through the industry: rising mortgage rates.
While mortgage rates have historically been a key driver in the real estate market, the recent rate surge has sent both home buyers and sellers into a state of unease. Or as one recent article put it, “The housing market was already painful, ugly, and anxious – now the 8% interest mortgage rate is back.”
In this article, we will explore the reasons behind this anxiety and how these rising rates are impacting both parties.
First, why do we have rising Mortgage Rates?
Mortgage rates had been at historic lows for a significant period (think post-2008), making homeownership more affordable and accessible for many. However, this trend began to reverse when central banks and financial institutions across the globe started to increase their interest rates to combat inflation and stabilize the economy post-COVID-19.
In short, numerous factors are contributing to the rising interest rates for mortgage rates, including these six:
- Central Bank Policy: One of the primary drivers of mortgage rates is the policy set by central banks, such as the Federal Reserve in the United States. Central banks use their monetary policy tools, including setting short-term interest rates, to manage inflation and economic stability.
- Inflation Concerns: Inflation is the increase in the general price level of goods and services over time. When inflation starts to rise, central banks may respond by increasing interest rates to curb inflationary pressures.
- Economic Growth: An improving economy can also contribute to higher mortgage rates. When the economy is doing well and unemployment is low, there is upward pressure on interest rates as the demand for borrowing increases.
- Bond Market Movements: Mortgage rates are closely tied to the yields on long-term government bonds, especially the 10-year U.S. Treasury bond.
- Housing Market Conditions: The state of the housing market itself can influence mortgage rates. When there’s strong demand for housing and limited housing supply, lenders may not need to offer lower rates to attract borrowers. Conversely, in a weaker housing market, lenders may reduce rates to entice more homebuyers.
- Global Economic and Political Events: Global events can also impact mortgage rates. For example, geopolitical tensions, international economic trends, and global financial crises can lead to shifts in the bond market, affecting mortgage rates.
Inflation and the central bank are the leading reasons your year-fixed-rate mortgage increases if you are a home buyer. Interest rates are also rising due to the limited demand/current housing market. The downside to the increased mortgage rates is the higher monthly mortgage payments.
Let’s look at how the higher mortgage rates can impact home buyers.
High-Interest Rates – The Impact on Home Buyers:
High mortgage rates, limited housing supply, and high home prices are causing some homeowners in and around Charlotte, NC to reconsider selling or buying their homes. For home buyers, rising mortgage rates mean the cost of borrowing money to purchase a home is increasing.
This, in turn, reduces their purchasing power. It’s a double-edged sword, as it not only means a more expensive monthly mortgage payment but also increases overall home prices. As a result, buyers are now facing a tougher financial landscape and may have to compromise on the type of home they can afford or delay their homebuying plans.
The “Big 3” impacts of mortgage rates on home buyers:
- Affordability Concerns: Rising mortgage rates directly affect the affordability of homes for prospective buyers. A 1% increase in mortgage rates can increase the monthly payment on a typical 30-year mortgage by several hundred dollars. This puts pressure on the budgets of many potential buyers, making homeownership less attainable.
- Decision Paralysis: Higher mortgage rates can lead to a sense of uncertainty among potential buyers. Some may hesitate to make a purchase, fearing that rates will continue to rise, while others may rush into buying a home before rates climb even further, potentially leading to impulsive decisions.
- Reduced Market Activity: The combination of reduced affordability and decision paralysis can lead to a decline in market activity. Fewer buyers in the market can result in longer listing times for sellers, which may lead to price reductions.
Lastly, with the increasing home prices, the interest rate matters. An increase of one percentage point can increase the monthly mortgage payments by $175 on a $300,000 home. Over the course of 30 years, that can also be over $30,000 in interest.
But not all is lost! The upside to purchasing a home now (even with a higher purchase price and high-interest rates) is still in your favor. Trends are still suggesting home prices are increasing, meaning if you buy now, your home will be worth more later. This is especially true in the Charlotte housing market. The market looks solid for years to come.
Should mortgage rates prevent you from buying a home, you always have options. Look into other options like veteran loans, private mortgage insurance, first-time home loan initiatives, and other possible rescues. Contact a local Charlotte, NC real estate agent to aide you in this journey!
High Mortgage Rates: How they Impact Home Sellers:
Contrary to what you might think, the high-interest rates and mortgage rates impact sellers. For one, potential sellers who purchased prior to the interest rate increase in late 2021 and onward quickly become non-sellers.
Why?
For starters, they want to hold on to their current rate. They are also scared of the housing market and unable to sell their home because of the mortgage rates. Below are the “Big 3” impacts on home sellers in the current market in conjunction with high-interest rates:
- Slower Sales: Rising mortgage rates can deter potential buyers, causing homes to sit on the market for more extended periods. This can be a stressful experience for sellers, especially if they are eager to sell quickly.
- Price Pressure: The longer a home sits on the market, the more likely sellers may need to reduce their asking price to attract buyers. This can result in a reduction in the potential profit sellers could make from their home sale.
- Uncertainty: Sellers may also find themselves uncertain, not knowing if their home will sell for the desired price or how long it will take. This unpredictability can make planning for the future challenging and moving forward with other housing-related decisions.
Steps to get the best mortgage rate for you:
Even with high-interest rates, getting a mortgage or, at the very least, getting prequalified doesn’t hurt. The simple steps to getting a mortgage rate is to complete the following:
- Assess Your Financial Situation: Review your current financial situation, including your credit score, income, expenses, and outstanding debts.
- Set Financial Goals: Determine your homeownership goals, such as the type of property you want, the loan term (e.g., 15-year or 30-year mortgage), and the amount you’re willing to put down.
- See if you can improve your Credit Score: A higher credit score can help you qualify for better mortgage rates. Take steps to improve your credit by paying bills on time, reducing outstanding debts, and addressing any inaccuracies on your credit report.
- Shop Around for Lenders: Don’t settle for the first lender you encounter. Research and compare multiple lenders, including banks, credit unions, online lenders, and mortgage brokers. Each may offer different terms and rates.
- Get Pre-Approved:
- Compare Mortgage Rates: Compare the interest rates, annual percentage rates (APR), and any additional fees or points.
- Understand Loan Types: Learn about the different mortgage types available, such as fixed-rate mortgages (e.g., 15-year, 30-year), adjustable-rate mortgages (ARMs), and government-backed loans like FHA or VA loans. Choose the one that aligns with your goals and financial situation.
- Consider Down Payment Options: Determine how much you can afford to put down as a down payment. A larger down payment can lower interest rates and reduce private mortgage insurance (PMI) costs.
- Budget for Closing Costs: Be prepared for closing costs, which can include fees for origination, appraisal, title search, and more. Discuss these costs with your lender and ensure you have the necessary funds.
- Read the Fine Print: Carefully review the terms and conditions of the mortgage, including prepayment penalties, rate lock policies, and any potential changes in interest rates for adjustable-rate mortgages.
- Negotiate and Ask Questions: Don’t hesitate to negotiate with lenders and ask questions about any terms or fees you don’t understand. Make sure you’re comfortable with the terms of the loan.
- Get Professional Advice: Consider working with a mortgage broker or financial advisor who can provide expert guidance on finding the best mortgage for your needs.
- Compare Overall Value: Don’t focus solely on the interest rate. Consider the overall value of the mortgage, including the lender’s reputation, customer service, and the total cost of the loan over its life.
- Lock in Your Rate: Once satisfied with a lender’s offer, consider locking in your interest rate to protect against potential rate increases while processing your application.
- Complete the Application Process: If you are unsure whether you qualify for a mortgage rate, it is best to always work with a loan officer or speak with a real estate agent like Robin, who can point you in the right direction.
The Final Word –
The rising mortgage rates are significantly impacting both home buyers and sellers, creating uncertainty and fear in the real estate market.
In summary, affordability is becoming a primary concern for buyers, while sellers face the prospect of longer listing times and potential price reductions. Both parties must be well-informed, financially prepared, and adaptable to market conditions in such an environment.
Consulting with real estate professionals who can guide in navigating the ever-changing real estate market landscape is essential. While the current scenario may be daunting, it is important to remember that the real estate market is cyclical, and conditions will likely evolve, offering new opportunities for buyers and sellers alike.
Rates can go down in the near future, and there are options, such as refinance rates, you can explore down the road.
Frequently Asked Mortgage Rate Questions:
How are mortgage rates impacting home sales?
Affordability is becoming a primary concern for buyers, while sellers face the prospect of longer listing times and potential price reductions. The high-interest rates can sometimes prevent people from selling or buying.
How do today’s mortgage rates impact your monthly payment?
Higher interest rates increase the monthly payment. For example, a 1% increase on a $160,000 loan is an additional $100 monthly on your mortgage payment. This also means that you will pay more in interest throughout a loan.
What affects current mortgage rates?
The housing market, central bank, bond market, and inflation are the top four reasons that mortgage rates increase (or decrease).
What credit score do mortgage lenders use?
According to Freddie Mac and Investopedia, the most commonly used FICO Score in the mortgage lending industry is the FICO Score 5.
What is a good mortgage rate today? (End of 2023):
6.5% to 7.75% is considered a reasonable rate at the time of writing. This might seem astronomical compared to rates in 2020, but the best way to gauge rates is to use a rate calculator such as Bank Rates.
How long can you lock in a mortgage rate?
A mortgage rate lock can vary based on your lender fees and terms. Rate locks are typically available for 30, 45, or 60 days, sometimes longer. If your mortgage rate is not locked, it can change at any time, and you might have to extend your rate.
