With mortgage rates rising, should I buy a house now?

Home ownership has been long regarded as the key to building generational wealth. But with interest rates on mortgages rising and demand for homes dropping, is it the right time to buy a home?

What’s happening?

Mortgage interest rates are rising again. Rates plunged in August 2021, then skyrocketed in the first half of 2022. After hitting 7.08% in November 2022, rates had been trending downward. That led to a January boost in activity.

Mortgage rates jumped 50 basis points over the last month.

Mortgage rates are influenced by a number of factors, including the bond market, the Federal Reserve’s monetary policy, and competition between lenders and across loan types.

The latest numbers

The Mortgage Bankers Association’s seasonally adjusted index last week found mortgage applications dropped 6% compared to the previous week; the purchase index is at a 28-year low.

For the week ending Feb. 23, Freddie Mac reported the 30-year fixed-rate mortgage averaged 6.5%. That’s up from 3.89% last year at the same time. And 15-year fixed-rate mortgages averaged 5.76%, up from last year’s 3.14%.

Congress created Freddie Mac, the Federal Home Loan Mortgage Corp., in 1970 as a private company that now operates under a congressional charter as a shareholder-owned company. Their rate is based on applications Freddie Mac receives from lenders, limited to borrowers with excellent credit who put 20% down.

So what?

“The economy continues to show strength, and interest rates are repricing to account for the stronger than expected growth, tight labor market and the threat of sticky inflation,” said Sam Khater, Freddie Mac’s chief economist, in a news release.

Khater added that homebuyers could save $600 to $1,200 annually by shopping around among lenders.

“Data on inflation, employment, and economic activity have signaled that inflation may not be cooling as quickly as anticipated, which continues to put upward pressure on rates,” Joel Kan, Mortgage Bankers Association’s vice president and deputy chief economist, said in a release.

Last week, the White House announced that the Federal Housing Administration will reduce its annual mortgage insurance premium by .3 percentage points, dropping from .85% to .55%. This premium is the monthly fee homeowners with FHA-insured mortgages have to pay on top of principal and interest payments. FHA-insured mortgages accounted for 7.5% of home sales in 2022’s third quarter.

Should you buy a home right now?

Despite the high mortgage rates, it’s not necessarily a bad time to purchase a home. Experts are predicting a drop of 10% to 15% in home prices this year, making homes more affordable for many.

And because it’s more difficult to qualify for a mortgage with these high interest rates, you’ll face less competition. Plus, homes will be on the market for longer. You can also refinance your mortgage later if rates drop.

This story was originally published March 2, 2023 at 9:01 AM with the headline "With mortgage rates rising, should I buy a house now?."