Despite the Federal Reserve raising its benchmark interest rates by 75 additional basis points in its continued effort to curb runaway inflation, mortgage rates have started to fall-but some economists are warning that homebuyers who still can afford to do so shouldn’t expect that to last.
According to CNBC, following the news from the Fed on Wednesday, the average rate of 30-year fixed mortgages fell to 5.22% on Thursday from 5.54% on Wednesday. By Friday, it had fallen even further to 5.13%. The drop also comes after the Bureau of Economic Analysis’ gross domestic product report, which revealed that GDP fell 0.9%. Rates had previously reached a recent high in mid-June of just over 6%.
The lower rates, as well as sellers starting to reduce prices to entice buyers, have had an effect on potential homebuyers, with Redfin reporting a slight uptick in searches and home tours in the past month.
“The housing market seems to be settling into an equilibrium now that demand has leveled off,” Redfin’s chief economist, Daryl Fairweather, said in a release. “We may still be in for some surprises when it comes to inflation and rate hikes from the Fed, but for now an ease in mortgage rates has brought some relief to buyers who were reeling from last month’s rate spike.”
However, others warn that the overall rise in interest rates could still lead to a rise in mortgage rates because of what the raise in the Fed’s benchmark is meant to do.
“[The rise in interest rates] means that mortgage rates are going to continue to rise and that we’re going to see some pullback in the housing market,” Dana Peterson, chief economist at The Conference Board said on“And that’s a function of, yes, very elevated prices that’s affecting affordability, but also rising interest rates.”
The Fed is expected to raise rates again this year, which could be a bad sign for those looking to buy, as well as those who wish to sell a home. While some sellers are accepting lower prices for their homes and dropping their list prices, affordability is still at a low point for most buyers due to the higher interest rates and still above-average prices for homes. Over the last five years, the average home price has sky-rocketed.reports a median home sales price of $235,000 in 2017. By Q4 2021, that median had jumped to $423,600. The Q2 2022 median continued to rise, with a median sales price of $440,300, according .
A home that sold at that median price with a 20% down payment at the 5.54% interest rate would have an estimated monthly payment on a 30-year mortgage of $2,008 per month. At the 5.13% rate, the payment drops to $1,918 a month. However, compared to a are an additional $500 a month, as that same sale price then would have had a payment of $1,471 a month.in Jan. 2021, the payments