During these past two years, mortgage interest rates have been at their highest in decades due to the economy. Inflation has had a direct impact on these lending rates, making it more expensive to buy a home and prompting more homeowners with historically low rates not to sell theirs, creating an even bigger crunch on the housing inventory shortage.
In an attempt to bring down inflation, the Federal Reserve has been increasing rates during this period. While those actions have slowed inflation, rates remain high. In this blog, we will discuss the mortgage rate landscape and what you should know.
How Inflation Impacted Rates
The COVID pandemic brought hardships to the entire world in many ways. The world's economies were all affected and the U.S. experienced rising inflation. To slow the rising cost of living, the Fed increased interest rates. This, in turn, caused rates for mortgages and other lending to increase to where they are today from their near historical lows just a few years ago.
According to Business Insider, the Fed rate increases caused mortgage rates to rise to a 20-year high. These actions have slowed inflation significantly. Today, the Fed has signaled there will not be any more rate increases right now, leaving mortgage rates high.
How Are Home Prices Affected?
High interest rates were not the only thing affected by inflation; the prices of homes also rose. The existing housing inventory shortage and high demand for homes contributed to this. Experts suggest even small reductions in interest rates will create an influx of home buyers that may cause prices to go up even further, according to USNews.com.
What Does This Mean for Inventory?
Housing inventory, as mentioned, is directly affected by interest rates. High rates tend to discourage people from buying homes and dissuade homeowners with low interest rates from selling. Experts say any drop in mortgage rates will trigger a rush to buy homes. This will cause home prices to increase and more competition among buyers, according to Bankrate.com.
Will Rates Ever Drop?
Mortgage rates are at a 20-year high and have not significantly reduced since mid-2023. The Federal Reserve plans to drop rates should inflation drop to pre-pandemic numbers. As of April 2024, the inflation report actually indicated a slight increase in inflation, which could keep rates where they currently are, according to CBSNews.com.
Perks of Buying at High Rates
Buying during high interest rates has a couple of advantages. According to Business Insider, buyers who purchase during this high-rate environment may benefit from lower prices because fewer people are house hunting.
Also, homebuyers do not have to wait to get into their dream home. They can get a mortgage at the current rate and then refinance their home loan once rates drop. With a mortgage, you will pay a principal payment, interest on the loan and escrow. By refinancing your loan to a lower interest rate, you will pay less on your mortgage payment.
Get Ready to Buy
While we wait to see if interest rates drop, here are some tips to help you qualify for your best rates when the time comes to apply for a mortgage:
- Monitor your credit score: Monitoring your credit report and score can ensure you get the best interest rate possible when you apply for a home loan. Your credit report, which you can get for free at annualcreditreport.com, will allow you to identify any issues with your credit that you can fix before you apply. Your credit score will give you an idea what your interest rate will be when you prequalify for a mortgage. In general, the higher your credit score, the lower your rate.
- Shop for the best rates: Shopping around for the right lender can help get you the best rate possible. Identify your top lenders and get quotes from them so you can compare interest rates and loan features.
- Track interest rates: Keep an eye on the mortgage landscape to spot trends that are beneficial for homebuyers. Knowing how the market is changing will let you act sooner and stay ahead of the rest.
How Can TCU Help?
Travis Credit Union can help you get ready no matter where you are on your home-buying journey. Our knowledgeable mortgage loan officers will go over the house-buying process, identify the right loans for you and walk you through the process once you do apply. Visit our Mortgage Hub to get started.
If you are already a homeowner, TCU can refinance your home loan if you want to take cash out or lower your interest rate. There’s so much more TCU can do for you. Get to know us at Traviscu.org.