According to Freddie Mac, the average 30-year fixed mortgage rate has increased from under 3% in 2021 to over 5% in 2023.
This significant jump has added hundreds of dollars to monthly mortgage payments for new homebuyers.
“This rapid increase in rates has priced many buyers out of the market,” said real estate agent Sarah Thompson.
“Those who are still able to qualify are finding that they can afford significantly less house for the same monthly payment.
“The situation has also slowed down the pace of home sales.
According to the National Association of Realtors (NAR), existing home sales fell by 17.
8% in December 2022 compared to December 2021.
“Buyers are becoming more hesitant to make large financial commitments with rates so high,” said NAR Chief Economist Lawrence Yun.
“Many are opting to wait and see if rates come down before entering the market.
“Apart from the financial impact, rising rates are also affecting the availability of homes.
Homeowners who refinanced their mortgages at historically low rates in recent years are less likely to sell and move up to a larger home, further limiting inventory.
“The market is becoming increasingly competitive for homebuyers,” said Thompson.
“With fewer homes for sale and more buyers facing budget constraints, it’s important to have a strong financial foundation and be prepared to make compromises.
“Industry experts predict that interest rates will continue to rise in the coming months.
However, they believe that the market will eventually stabilize as buyers adjust to the higher cost of borrowing.
“While the current situation is challenging, it’s important to remember that real estate is a long-term investment,” said Yun.
“Over time, the value of homes tends to increase, and homeowners who can afford to buy now may benefit in the long run.
“To mitigate the impact of rising rates, homebuyers are exploring alternative financing options such as adjustable-rate mortgages (ARMs) and government-backed loans.
It’s crucial to carefully consider all options and consult with a financial advisor to determine the best path forward for each individual’s situation.