The firm revised its outlook for home prices in response to the recent spike in mortgage rates. The 30-year fixed mortgage rate hit 6.03% on Monday, according to data from Mortgage News Daily. The same mortgage rate remained below 3.5% in January. Rates have risen so high that the average homebuyer who buys a property at the average price will now spend more than a quarter of their annual income on mortgage payments alone, according to Capital Economics calculations.
Those higher mortgage rates mean homebuyers are finally feeling the brunt of record home price appreciation. The group says they continue to anticipate a sharp slowdown in home price growth in the future due to the delayed effects of higher mortgage rates and the slowdown in the economy weighing on purchase demand. He also notes that “you can set a rate now, buy the house and refinance in the future if rates go down. Rates have risen steadily as the Federal Reserve raises its benchmark interest rate to combat rampant inflation, most recently rising three-quarters of a percentage point higher than normal.
The implication for housing is that, in such a case, mortgage rates may end up rising further as market expectations of a more aggressive tightening of the Fed are set. The rate hike has led to a drop in the volume of mortgage applications, which reached a 22-year low earlier this month. As a result, financial markets increased the 30-year average fixed mortgage rate from 3.1% to 5.7% over the past six months. While Fed rate hikes do not directly affect mortgage rates, all forms of indebtedness are becoming more expensive as the market adjusts to expectations of tighter monetary policy and the possibility of a resulting recession for the US economy.
However, he believes that mortgage rates are unlikely to rise in the coming weeks, but borrowers should not expect a return to the lows seen during the start of the pandemic. Paying down debt and reducing credit card balances can also help improve your credit score, which can open up new lending options and lead to a lower mortgage interest rate. The decision to buy also depends on your current financial state and how higher mortgage rates have impacted your budget for buying a home. Even so, mortgage rates in such a situation will likely stabilize or even fall back, helping to support home sales even if the labor market starts to decline.