Real Estate

I Need to Buy a House, But Why Are Mortgage Rates Going Up?

Homeowners who bought the property in 2020 and 2021 made out like bandits, thanks to the historic low-interest rates. However, now that mortgage rates are increasing, people are more hesitant to enter the market because they know their mortgages are going to be significantly higher. 

There are many reasons why rates are rising and there’s no way for buyers to avoid it. However, experts say it’s time to find a real estate agent because it’s still a good time to buy. 

What factors determine mortgage rates?

The pandemic through a huge wrench into the system and in an effort to encourage people to spend money, the Federal Reserve cut interest rates. In the beginning, it worked and people were buying property like it was going out of style. However, now that inflation has the economy in a chokehold, the Fed wants us to cut back, so they’re increasing rates. 

While the Fed is jacking up interest rates, prime rates and the bond market are also contributing to the increase. People with exceptional credit often get the best rates, aka “prime rate.” So when the Fed increases its rates, banks will also adjust their prime rate. They go hand-in-hand. 

When consumer spending is low, we find ourselves in a recession. However, when there’s too much money in the system but not enough goods to meet demand, that’s when inflation takes hold. It’s a delicate balance that can go one way or another really easily. 

Why are rates increasing? 

Inflation is the main culprit for rising rates and experts don’t see them coming down any time soon. While we may not reach the historically high rates we saw in the early 90s, 6% to 7% is still high compared to the 2% to 4% we saw two years ago. 

What does this mean for buyers? 

Unfortunately, there will always be a need to buy or sell real estate regardless of what the economy, interest rates, or the Fed does. It’s just the nature of the beast, so to speak. But that doesn’t mean you should put yourself in a financial bind just to lock in your rates today because you’re afraid of rates increasing tomorrow. 

The best anyone can do is to buy when you’re ready and able to do so comfortably. That means saving as much as you can until your finances are in order. Of course, if you’re in a position where you have no choice but to buy, then there isn’t much you can do. 

Mortgage rates are cyclical and they are always rising and falling. You have to make the best decision for yourself and your family. If now isn’t the time to buy and you’d feel more comfortable renting, so be it. Always remember that things could be worse – like having a near 20% interest rate like in the late 1970s! Yikes!

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