You’ve no doubt been keeping tabs on the continued rise of mortgage rates. Freddie Mac announced last week that the average 30-year fixed-rate mortgage is sitting at 4.9%. That’s the biggest weekly jump we’ve seen in two years and another blow to the housing market. First-time buyers are the most likely to struggle with the increase.
Back to Normal
If you’ve been in the real estate game for a while, then you know that 5% isn’t that bad. In fact, before the financial crisis, rates of 5-7% were pretty much the norm. After the crash, the historically low rates created a new normal. Buyers were able to get rates of 3-4% at the lowest point. And after a short time, buyers came to expect those rates. Now that we’re climbing back up to pre-crash mortgage rates, 5% seems like a deal breaker.
To break it down, a rate of 5% on a home with a $250,000 mortgage works out to an increase of $150 a month over the same mortgage at 4%. If buyers do the math, they may end up deciding to put off buying until rates fall again. But is that realistic?
An Escalating Problem
Home sales fell in August, as they’ve done for six straight months. There are a cluster of factors at work, and mortgage rates are only part of the puzzle. An inventory shortage in many markets is a big issue, and home prices for active listings have skyrocketed. Combined with the higher mortgage rates, many people are deciding to wait to look for a new home. That’s especially true for first-time buyers, who often have smaller budgets for down payments and more hesitancy about buying a home. Almost half of the loans backed by Freddie Mac are from first-time buyers.
Help on the Horizon
First-time buyers may not be aware of the assistance programs available to them. If you have experience to help these people through the process, you might be able to carve out a niche for yourself as a buyer’s agent for first-timers. Do your homework and let the buyers know about all their options for help with down payments and mortgage rates.
Sellers may also need to adjust their expectations. With the market starting to cool off, sellers might be wise to lower prices—especially if they’re trying to sell a starter home.
