Mortgage rates have ticked down slightly in the past few days, though they still remain above 5%.
On Wednesday, the latest Consumer Price Index data was released by the Bureau of Labor Statistics, showing that prices have risen 8.3% year over year in April. This is a slight deceleration from March, when the CPI hit an annual rate of 8.5%. The Federal Reserve has already raised the federal funds rate twice this year to calm this high rate of inflation, and mortgage rates have been increasing as a result.
Even though rates are up, that doesn’t necessarily mean it’s a bad time to buy a house. Depending on where you live, purchasing a home may end up being a better deal than renting.
“I still believe we are in a market that is advantageous to buy or own in,” says Ralph DiBugnara, president of Home Qualified and senior vice president of Cardinal Financial. “Higher rates mean less buying power in some cases, but rent is rising as fast or faster than home prices because of inflation, making buying the more ideal option for many.”
Are mortgage rates going up?
Mortgage rates started ticking up from historic lows in the second half of 2021, and will likely continue to increase throughout 2022. This is in large part due to high levels of inflation and policy response to rising prices.
In the last 12 months, the Consumer Price Index rose by 8.3%. The Federal Reserve has been working to get inflation under control, and plans to increase the federal funds target rate five more times this year, following a 0.25% increase at its March meeting and a 0.5% increase in May.
Though not directly tied to the federal funds rate, mortgage rates are often pushed up as a result of Fed rate hikes. As the central bank continues to tighten monetary policy to lower inflation, it’s likely that mortgage rates will remain elevated.
What do high rates mean for the housing market?
When mortgage rates go up, home shoppers’ buying power decreases, as more of their anticipated housing budget has to go toward paying interest. If rates get high enough, buyers can get priced out of the market completely, which cools demand and puts downward pressure on home price growth.
However, that doesn’t mean home prices will fall — in fact, they’re expected to rise even more this year, just at a slower pace than what we’ve seen in the past couple years.
Even though high rates slow demand, low inventory will keep pushing prices up, says DiBugnara.
“There’s such a shortage that even if 50% of the people stop looking today, you would still have a high demand,” he says. “So I just think that because of that demand, you’re going to see prices rise for at least another 18 to 24 months.”
What is a good mortgage rate?
It can be hard to know if a lender is offering you a good rate, which is why it’s so important to get preapproved with multiple mortgage lenders and compare each offer. Apply for preapproval with at least two or three lenders.
Your rate isn’t the only thing that matters. Be sure to compare both what your monthly costs would be as well as your upfront costs, including any lender fees.
Even though mortgage rates are heavily influenced by economic factors that are out of your control, there are some things you can do to help ensure you get a good rate:
- Consider fixed vs. adjustable rates. You may be able to get a lower introductory rate with an adjustable-rate mortgage, which can be good if you plan to move before the intro period ends. But a fixed rate could be better if you’re buying a forever home because you won’t risk your rate going up later. Look at the rates your lender offers and weigh your options.
- Look at your finances. The stronger your financial situation, the lower your mortgage rate should be. Look for ways to boost your credit score or lower your debt-to-income ratio, if necessary. Saving for a higher down payment also helps.
- Choose the right lender. Each lender charges different mortgage rates. Picking the right one for your financial situation will help you land a good rate.