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Mortgage Interest Rate Trends Reflect "Real" Home Prices are Up by 50% as Rate Flirts with 6%

Although higher interest rates may result in buyers exiting the market, current mortgage interest rate trends may also be the catalyst for a reversal in housing prices. In March 2020, you could get a 30-year mortgage with a fixed interest rate of 3%. Today, the average interest rate on that same loan is about 6%, which is a level that hasn't been seen since November 2008.

How Might Current Mortgage Interest Rate Trends Help Buyers?

Since March 2020, it has been common for sellers to receive multiple offers on their homes on the day that they have gone on the market. This is partially because there has been a relative lack of inventory in most cities throughout the United States. 

An increase in interest rates may mean that homes sit on the market for a little longer. However, buyers have also engaged in bidding wars because interest rates are at historic lows. Therefore, they can offer more for a home without going past their preferred monthly payment. 

Ultimately, buyers won't feel compelled to make an offer just because they're scared that their dream home won't be around if they wait. Over time, this may be enough to either push prices down or slow the pace of price appreciation in a given market. 

Mortgage Interest Rate Trends Can Help Buyers Reassess Their Needs

Many savvy buyers knew that interest rates on home loans weren't going to remain at or below 3% forever. Therefore, they may have been tempted to buy a home to lock in a low rate even if they weren't ready to do so. As interest rates climb, buyers need to spend more time evaluating their financial situations before shopping for a home and a loan. This may result in a more significant number of buyers purchasing homes based on objective criteria instead of relying on their emotions. 

Buyers May Have More Time to Evaluate a Home Properly

If mortgage interest rate trends continue their upward trajectory, they may gain more leverage during the transaction. Instead of agreeing to buy a home without any contingencies, it may be possible to add stipulations to a purchase agreement. These stipulations may include the right to inspect a home before the transaction closes, assistance paying closing costs, or help with the cost of any repairs that may need to be made. 

Adding these stipulations may help buyers ensure that their prospective homes are in good condition and that they can close without incurring financial hardship. It may also be possible for buyers to make a purchase contingent on selling their existing home, which can help ensure that they can make a smooth transition. 

Mortgage interest rate trends may make it difficult for some consumers to buy their dream homes. However, for some, taking a step back may be in their best interest. Furthermore, higher rates may make the market more competitive, which may provide those currently searching for a home a chance to find a deal that is more to their liking.

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