Experts Say to Focus on What You Can Control
- The average 30-year fixed mortgage rate rose to 4.14% this week after dropping below 4% last week.
- Rates have generally risen in recent weeks, driven in large part by inflation, which was 7.9% year-over-year in February, the highest in 40 years.
- Expectations that the Federal Reserve will start raising its benchmark short-term interest rate this month have also pushed mortgage rates up recently.
- Russia’s war in Ukraine has led to more volatility in financial markets, leading to big swings in rates the past few weeks.
- Despite the increases, rates remain near historic lows. Experts say buyers should focus on getting the best rate they can rather than trying to time the market.
The big weekly jump — 17 basis points — shows just how quickly and unpredictably rates are changing in an economic environment littered with factors pushing and pulling at lenders and borrowers. If you’re in the housing market or considering a refinance, experts say to focus on factors you can control.
“There are certainly things you can control,” says Jennifer Beeston, senior vice president of mortgage lending at Guaranteed Rate. “You can’t control the war in Ukraine, inflation, monetary policy, the stock market and 19 other things.”
Experts say several economic factors are pushing interest rates up this year: Inflation climbed again in February and, at 7.9% year-over-year, is the highest in four decades, the Bureau of Labor Statistics (BLS) reported Thursday. The economic recovery from the pandemic continues, with BLS saying last week the economy added 678,000 jobs in February. Expectations are that the Federal Reserve will start raising its benchmark short-term interest rate next week to address the high inflation.
Potentially countering the general increase is volatility driven by Russia’s invasion of Ukraine, which has already led to a massive human toll while also causing instability in financial markets worldwide. Experts say that can lead to drops in mortgage rates as investors seek safer assets than stocks and head toward bonds, which mortgage rates track.
“The biggest disconnect consumers have is that they don’t understand that rates are a living, breathing, constantly changing situation in markets that are this volatile,” says Beeston.
What’s Driving Changes In Mortgage Rates?
Rates have trended up since the start of the year, when they averaged around 3.3%. Inflation and the expectation that the Fed will start raising its benchmark short-term rate — which will increase costs for banks and other lenders – are two key factors behind that trend, Beeston says.
More clarity on the Fed will come at its meeting next week. Chairman Jerome Powell told Congress last week he would support raising the benchmark rate by a quarter of a percentage point, which gave markets a bit more clarity on what to expect, but Beeston says Russia’s invasion of Ukraine makes everything hard to predict.
“Once we see [the Fed’s] first move, you might see much less volatility,” she says. “If the Ukraine war wasn’t going on, I would be estimating that next week would even things out. But with the Ukraine war I think we’re going to keep on seeing these swings.”
Expert Forecast: What Will Happen to Mortgage Rates In March?
Big swings like we’ve seen the past two weeks were to be expected in March, experts told us. “I feel like they’re going to go up and down,” said Linda McCoy, board president of the National Association of Mortgage Brokers.
Rising interest rates will continue to cut into affordability as home prices continue to rise, experts told us. It means buyers will have to be more careful in making sure they can afford the monthly payments they’re signing up for. “When interest rates go up, that means you can afford less home,” Mitria Wilson-Spotser, director of housing policy for the Consumer Federation of America, said. “You have to rethink what you can afford, what is a comfortable monthly payment for you.”
What Other Mortgage Industry Data Indicate
Rates also went back up in this week’s survey by Freddie Mac, rising nine basis points to 3.85%. Freddie Mac said it expects rates will continue to rise over the long term while the war in Ukraine contributes to more volatility in the short term.
Freddie Mac is a government-sponsored entity that buys mortgages on the secondary market, and while its survey’s methodology and the time in which it collects data differ from others, such as the Bankrate survey referenced in this article. While the mortgage rate averages vary, they show similar trends over time.
Historical Mortgage Rates: Today’s Rates Are Still Favorable
Rates that hover near 4% are still pretty low compared to historical figures. Annual averages over the past two decades from the Freddie Mac survey, which follows similar trends to the Bankrate survey used in this article, show that rates remain quite favorable compared to what they were in fairly recent memory.
Given that rates were only recently under 3%, seeing figures that eclipse 4% can be jarring. But rates around 4% are still pretty good if you look at the long term. They were well above 4% as recently as 2018 and 2019. Before the 2008 crash, a “good” rate was still above 5%. Current mortgage interest rates are still very good from a long-term view, even if they’re breaking through the psychological barrier of 4%. Today’s mortgage rates also compare favorably to interest rates for other forms of debt.
What Do the Latest Rates Mean for Homebuyers?
Getting a mortgage these days can be confusing for buyers, Beeston says, but there are ways to keep it simple and straightforward. She cautions buyers against worrying too much about all the moves reported in rate averages and in the news, instead focusing on getting a rate that works for you and that you’re comfortable with. Don’t try to time the market to get the best rate you think you can get. “If you think you’re going to like the rate, lock it,” she says. “Because it’s probably going to change in 20 minutes.”
Buyers should work closely with their lender to be sure what they’re getting, what they’re qualified for and how rate changes will affect them. Beeston suggests talking to your lender about the rate spread for the payment you want, and that you should consider getting qualified at a higher rate so you can be comfortable with the amount you’re able to spend if rates go up. Check in with your lender at least every 10 days, she says. “Understand that you can’t control the market,” she says. “It’s way too volatile.”
You may also want to be wary if you’re pre-qualified for the maximum amount, because rate changes are happening quickly and that could lead to big swings in what a lender will actually approve for you, Beeston says. “You could be qualified on Thursday and declined on Friday because the rates moved an eighth [of a percentage point],” she says. “Don’t get max qualified. Give yourself some wiggle room.”
And if you’re waiting for home prices to drop because interest rates are going up, don’t hold your breath. Beeston says the factors driving up home prices are supply and demand, not mortgage rates, and neither supply nor demand are going to change quickly. “Unless we suddenly have a huge supply of housing, prices are going to keep going up,” she says.
What Do the Latest Rates Mean for Existing Homeowners?
While experts have said the rising rates have cut down the number of homeowners who can save money by refinancing at a lower rate, whether it makes sense depends entirely on your personal financial situation. Generally, if you can refinance at a rate at least 0.75% lower than your existing rate, it makes sense. “If you can lower your rate, regardless of what’s going on in the market, and it’s going to save you money, cool,” Beeston says.
Another option is a cash-out refinance, which is less based on lowering your interest rate and instead allows you to tap into some of the equity of your home – like from those rising home prices – to take out cash for another purpose. That might be for a major home improvement to further boost the equity, or for debt consolidation. Beeston says debt consolidation is typically a good reason to refinance, especially because rising interest rates will affect not just mortgage rates but all consumer debt, including credit cards.
If you’re considering a cash-out refinance to take out a relatively small amount of money, however, Beeston recommends taking a close look at whether it’s worth doing so if you’re raising the interest rate on the rest of your mortgage. If you have a mortgage of, say, $500,000, and you want to do a cash-out refi to take out $10,000, crunch the numbers to see if it’ll cost you more in the long run. “Make sure you’re doing the math,” Beeston says. “Don’t just trust the lender to do the math for you.”
Source: time.com ~ By: Jon Reed ~ Image: Canva Pro