After weeks of decline, mortgage rates experience a slight rise

Since the middle of November, mortgage rates have been slowly falling, causing improved investor and homebuyer sentiment. However, recent mortgage rate increases have been the source of worry for homeowners. The 52 basis point increase in the 30-year fixed rate mortgage, bringing the current rate to 6.61%, begs the question of what will happen in the housing market moving forward.

Rates on the Rise, Homes on the Decline

As a prospective home buyer, increased mortgage rates will directly affect the price of a home. When mortgage rates increase, the monthly payment on a 30-year fixed loan increases, thus discounting current listings. These rising rates are an effort to slow the demand of new home buyers, which, in turn, will bring down prices of homes in the U.S. Unfortunately, many Americans will have to wait even longer for home prices to drop further as the average home price is still up 42% from 3 years ago. Mortgage rates were on the rise this week due to a stronger than expected jobs report. Don’t be deceived; a strong job report can be bad during a time of high inflation.

The Need for More Homes

Purchase activity has remained most prevalent in larger properties, rather than entry-level housing. One way to open more opportunities for first-time home buyers is to construct more affordable housing, which is something no developer currently wants to take on. Despite reduced listing prices, overall home prices are still deemed high. These prices will likely remain high due to the halt of new home construction. According to the Census Bureau, construction of new homes has declined nearly 22% from the previous year. This lack of new inventory paired with the fact that no current home buyer wants to sell their property at a discount— thanks to high mortgage rates— will extend the market’s state of low inventory for a long period of time.??

The Effect on Potential New Home Buyers

Although mortgage rates have shot up this week, rates are expected to drop sometime during 2023. With these expected rate decreases, new home buyers should be paying more attention to the rate they can secure on their loans.?Here are three personal finance tips to acquire a lower monthly payment on a mortgage:?

1. Improve your credit score. A high credit score will decrease the monthly payment of a loan because it is viewed as less risky in the eyes of a lender.
2. Save more to increase your down payment. A larger down payment means that you will have a smaller mortgage, thus lowering your monthly mortgage payment.?
3. See what other lenders are offering in terms of rates. Different lenders will offer different rates and fees so it is in the borrower’s best interest to shop around and see what option is best.?

Written by

Anthony Mandravellos

Matthew Sorace

February 10th, 2023

Ohio State University

Financial Literacy for the Youth

Works Cited

Backman, Maurie. “New Home Construction Is down Almost 22% from a Year Ago. Are Buyers Looking at a Continued Lack of Inventory?” The Motley Fool, The Ascent by The Motley Fool, 5 Feb. 2023, https://www.fool.com/the-ascent/mortgages/articles/new-home-construction-is-down-almost-22-from-a-year-ago-are-buyers-looking-at-a-continued-lack-of-inventory/.?

Colomer, Nora. “Mortgage Rates Rise Slightly Following Strong Economic Data: Freddie Mac.” Fox Business, Fox Business, 10 Feb. 2023, https://www.foxbusiness.com/personal-finance/mortgage-rates-increase-following-strong-economy-freddie-mac.?

Los Angeles Times. (2022, April 20). Mortgage rates are rising. will that slow our out-of-control housing market? Los Angeles Times. Retrieved February 10, 2023, from https://www.latimes.com/business/story/2022-04-20/mortgage-interest-rates-rise-will-southern-california-home-prices-drop?

“Mortgage Rates Edge Higher after Weeks of Declines.” Yahoo! Finance, Yahoo!, https://finance.yahoo.com/news/mortgage-rates-edge-higher-after-weeks-of-declines-170007943.html.?

“Mortgage Rates in the US Tick up for First Time in Five Weeks.” Yahoo! Finance, Yahoo!, https://finance.yahoo.com/news/mortgage-rates-us-tick-first-170000218.html.?