On Wednesday, the Federal Reserve raised federal interest rates by 75 basis points for the fifth time this year in an effort to quell record-high inflation.
This comes amid the most recent Consumer Price Index (CPI) report showing inflation increased slightly month-over-month. This sent markets plummeting as investors worry efforts from the central bank aren’t working as planned.
For home shoppers, this makes buying a home even tougher as interest rates for 30-year fixed-rate mortgages hit levels not seen since the 2008 housing crash, according to the St. Louis Federal Reserve.
So how should homebuyers approach a housing market with stagnating home prices, yet with interest rates at 15-year highs? Select spoke to two experts about the latest interest rate hike and how consumers, especially homebuyers, should be thinking about it.
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How to shop for a home amid high-interest rates
The advice of Melissa Cohn, the regional vice president of William Raveis Mortgage, is simple: “You marry the house but date the rate.”
This comes from the idea that your home is a long-term purchase, while a mortgage is something you can easily move on from by refinancing. Refinancing a home mortgage is taking your outstanding home debt from one agreement, and moving it to another with more favorable repayment terms. Refinancing is typically done when you have a higher interest rate but lower mortgage rates have become available.
She says to look at the initial mortgage on a home purchase as a “bridge” to better financing later on. She also added that, “It’s highly likely that rates will be lower by the middle of next year and even if that projection misses the mark certainly by the end of 2023 or early 2024.”
So if you’re not particularly happy with the rate you lock in today, consider putting money aside each month for refinancing costs in the near future.
But for those that are on the fence financially when it comes to homeownership, Michele Raneri, TransUnion’s vice president of financial services research and consulting, suggests possibly waiting on the sideline. She gives a great example of what monthly payments will look like on a $300,000 home with a 30-year fixed-rate mortgage, assuming a 20% down payment.
At a 3.5% fixed interest rate, which we saw earlier this year, the payment would have been roughly $1,300. Now, with average rates hovering around 6.5%, that monthly payment is now nearly $1,800. She says that by waiting on the sidelines for a few months, home prices …….