The typical house hunter who started searching in July and closed the deal on their new home in September saw their potential mortgage rate fluctuate by roughly half of a percentage point every four weeks, according to a new report from Redfin, the technology-powered real estate brokerage.
That’s the most volatile three-month period since 1987, when mortgage rates swung wildly after surging to a record high of nearly 19% earlier in the decade while the Fed worked to quell severe inflation.
“Volatility in interest rates will be the norm for a while,” says Nobu Hata, CEO of the Denver Metro Association of Realtors. “It’s important to [let] consumers [know] that Fed interest rate changes aren’t tied to mortgage rates and will fluctuate independently.”
For a house hunter looking to buy a $500,000 home, the Redfin study discovered that:
- When they started looking in early July, they expected their monthly payment to be $3,051. That equates to a total of $1.098 million over 30 years, assuming a 20% down payment and the prevailing 5.7% mortgage interest rate. Of that total payment, $435,777 is interest.
- When they found their dream home in early August, they expected their monthly payment to be $2,874. That equates to a total of $1.035 million over 30 years, assuming a 20% down payment and the prevailing 4.99% mortgage rate. Of that total payment, $372,143 is interest.
- When they locked in a mortgage rate for the home in late September, their final monthly payment turned out to be $3,202. That equates to a total of $1.153 million over 30 years, assuming a 20% down payment and the prevailing 6.29% mortgage rate. Of that total payment, $490,382 is interest.
In other words, the buyer’s total expected payment declined by about $64,000 (5.8%) from July to August, and then shot back up by about $118,000 (11.4%) from August to September.
Agents can’t control interest rates so do this instead
However, according to Alexis Bolin, a 44-year real estate veteran and broker-associate with Keller Williams Realty Gulf Coast in Pensacola, Florida, “We [agents] can’t control the market. We can’t control interest rates. But, you do have control over yourself. No more complaining about interest rates. As agents, our job is to find a buyer who can qualify and then find a seller who is willing to sell, then put those two people together.” She adds, “I tell them, ‘You marry the house and date the rate.’”
Interest rates will go up and down, she notes. So, right now, “Agents need to work on their relationships.”
Arthur Napolitano, who’s been in real estate since the 1970s, says that, “When rates were 17%, we focused on monthly housing budget talks with buyers, not price.” The agent with Better Homes and Gardens Real Estate Maturo in New Jersey, says, “Folks forget how much of a role taxes play in a monthly payment, so looking for suitable properties has to also include the tax rates in different areas. So, talk about “qualifying budget” and fit the house into that window.”
Brett Weinstein, founder of Guide Real Estate in Colorado, agrees with that approach. “Things can change fast— both with rates going up or down, so don’t overly judge one month. While we have 27% more inventory nationally, we are still well below pre-pandemic levels. It is estimated that one out of four buyers will be buyers with school-aged children in the next coming months. This makes sense as the market is being pushed by people selling for non-financial reasons — upsizing, downsizing, marriage, divorced etc.”
The future of mortgage rates
Mortgage rates are seesawing because the Federal Reserve has been raising interest rates as it works to tamp down sky-high inflation. The Fed last week increased interest rates by three-quarters of a percentage point to a range of 3% to 3.25%—its third big hike in a row—and predicted they’ll reach 4.4% by the end of the year. While Freddie Mac’s widely followed weekly data now has mortgage rates at 6.29%—the highest since 2008—a separate daily gauge has them as high as 7.08%.
The volatility in mortgage rates will likely continue in the near term as the Fed seeks to combat inflation, but mortgage rates should fall in the next 12 to 18 months if inflation eases as expected, according to Justin Dimler of Bay Equity, Redfin’s mortgage company.
“The good news for people who can still afford to buy a home and are set on making a purchase now is that they should be able to refinance to a lower rate in a year or two,” said Dimler, a regional sales manager at Bay Equity in the Seattle area.