Mortgage Rates Make It Tough for Homebuyers Despite Stalling Prices

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The rise in home prices is stalling or even starting to slip, but that isn’t making buying a house easier.

The big reason for the slowdown is also why it’s still difficult for buyers despite some relief in prices and competition – mortgage rates are stubbornly high.

Rates have risen significantly this year, and they have again flirted with hitting 6%. The average 30-year fixed-rate mortgage was 5.78%, down 6 basis points from last week, according to a weekly survey by Bankrate, which like NextAdvisor is owned by Red Ventures. Daily surveys of rates showed averages breaking 6% Friday.

Rates are up largely due to uncertainty in the marketplace about what steps the Federal Reserve will take to rein in persistently high inflation, which was 8.5% year-over-year in July. Fed Chairman Jerome Powell said last week in a speech in Jackson Hole, Wyoming, that efforts to raise interest rates to bring down inflation will “bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

The Fed has already raised its benchmark short-term interest rate several times this year, and is expected to do so again later this month.

“During the Jackson Hole meeting, Jerome Powell basically reaffirmed that he would do whatever it takes to fight inflation and rates would go as high as they need to go in order to do that,” says Daryl Fairweather, chief economist at Redfin. “He expressed that the job is very much not done. I think that made the market think that debt is going to continue to get more expensive. That has already manifested itself in these higher mortgage rates.” 

How High Mortgage Rates Affect Homebuyers

Mortgage rates are more than two percentage points higher today than they were at the start of the year, and that puts a strain on your budget when you try to buy a home. It’s particularly tough for first-time buyers, who don’t have a previous house to sell to help them cover some of the costs of a new home.

“It means that buying a home is going to get more expensive because that translates to higher monthly mortgage payments,” Fairweather says. “Buyers should know that if it’s getting more expensive to finance their home they should talk to their lender and figure out exactly what they can afford.”

Experts advise shopping around for a mortgage rate. Especially during times of quick changes in rates, the average is just an average. Different lenders could have wildly different rates, and you might find a great deal by getting loan estimates from three or four different lenders.

Pro Tip

Shop around to different mortgage lenders. With rates constantly on the move, you might be able to get a much better offer at a different lender.

The Housing Market is Slowing Down

New data from Realtor.com show the housing market is starting to turn a little bit more toward buyers’ favor, at least in terms of competition. The median time a house spent on the market rose year-over-year in August for the first time since June 2020, Realtor.com said, to 42 days. The median listing price has dropped in the past two months, to $435,000 in August compared to a record $450,000 in June, although it’s still 14.3% higher than it was in August 2021.

“For many of today’s buyers, the uptick in for-sale home options is taking away the sense of urgency that they felt during the past two years, when inventory was scarce,” Realtor.com chief economist Danielle Hale said in a statement. “As a result of this shift coupled with higher mortgage rates, competition continued to cool in August, with listing price trends indicating that home sellers are noticing shoppers tightening their purse strings. As we soak up the last days of summer, the housing market is beginning to find more balance between buyer-friendliness and still favorable selling conditions.”

Buyers are starting to find more negotiating power, experts say, being able to seek concessions from sellers that were unthinkable during the hot housing market of just a few months ago. That includes being able to ask for a lower price or asking the seller to help cover closing costs or pay for mortgage points to buy down that high interest rate.

“Sellers should know that buyers are working with less,” Fairweather says. “They have less resources available to make a high offer on the home. That’s probably going to translate into weaker offers and lower sales prices.”

Closing the Gap

Black homebuyers are denied a mortgage to purchase a home at twice the rate of the population at large across the country’s 50 largest metro areas, according to a report by LendingTree, which analyzed 2020 Home Mortgage Disclosure Act data. One likely contributor is the legacy of discriminatory policies like redlining – in which borrowers were denied home loans in mostly Black neighborhoods – and discrimination by lenders against Black borrowers. If you’re denied a mortgage, keep shopping around to different lenders and maybe consider other types of loans, like FHA or VA loans. If you feel you’ve been discriminated against, report it to your attorney general’s office or the U.S. Department of Housing and Urban Development.

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