Home sales still increased last month despite rising mortgage rates, which experts say is due to buyers trying to lock in current rates before the Federal Reserve takes action to curb inflation.
According to the National Association of Realtors, existing home sales increased 6.7 percent in January from December. This resulted in a seasonally adjusted annual rate of 6.5 million.
Although mortgage rates have already reached 4 percent, which is the highest rate since 2019, experts say the Fed’s interest rate hikes could push mortgage rates to 4.5 percent by the end of the year.
As a result, remaining buyers who haven’t been pushed out of the affordability range are trying to purchase a home before this increase occurs.
Experts say that even a change of 1 percentage point can increase monthly mortgage payments by hundreds of dollars.
While mortgage rates aren’t directly impacted by the Fed’s decision to raise interest rates, they are impacted by other factors that are influenced by the Fed’s policies.
These factors include the 10-year Treasury, which has almost reached pre-pandemic levels.
Experts say the Fed will have to raise interest rates significantly to have the type of impact they need to curb inflation and help balance the economy.
The Fed is planning to raise rates several times this year, with the first hike expected in March.
Experts also expect that while the hikes will be significant, it still will take time for inflation to drop.
Meanwhile, the NAR also reported that total housing inventory at the end of January moved to an all-time low, at 860,000 units.
This number of units is down 2.3 percent from December and 16.5 percent from a year ago.
As rates continue to rise, experts suggest potential buyers head to a mortgage lender to get pre-approved, or to update their pre-approval if it has been several weeks since they received their letter.
When rates move quickly, these letters are likely to go out of date.
Experts also suggest buyers adjust their expectations of their wants and needs in a home. It could take much longer to find their affordable dream home while rates are rising and inventory is low.
Finally, experts recommend buyers take stock of their finances to ensure they are in the best possible place to purchase a home.While rates still remain historically favorable, it may make more sense to seek other options, such as a cash-out refinance, on their current home if their dream home is now out of reach.
Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.