What rising mortgage rates mean for Phoenix homebuyers
The low interest rates that were a welcome reality in recent years are now gone. Due to inflation, everything is more expensive these days, including mortgages, which have increased dramatically. For the first time since the 2008 financial crisis, average mortgage rates are above 5%. The Fed is expected to continue to raise rates as we approach the late spring and summer of the housing market, which in turn affects mortgage interest rates. As a homebuyer, rising interest rates directly affect your bottom line, resulting in, among other expenses, a higher monthly mortgage payment. Let’s explore what this means for you, if you’re in the market to buy a home.
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Why are mortgage rates rising?
Inflation is out of control for major commodities such as housing, energy and food. We are currently living the the highest inflation rates in over 40 years. To make matters worse, workers’ incomes cannot keep up with inflation. During the week of April 11, the average rate for a 30-year fixed rate mortgage climbed to 5.25% 4.95% the previous week – the highest level since 2009.
The Fed is expected to keep raising rates the rest of the year to keep fighting inflation, announcing recently six more rate hikes proposed in the near future.
While a quarter-percentage-point increase here or there doesn’t seem like a lot, it adds up significantly for big-ticket purchases like buying a home.
Let’s explore what that looks like. Although a 20% down payment was once the norm, the median average is now 12%. So, let’s say you put down $60,000 for a $500,000 loan with a 30-year fixed mortgage, here’s what your monthly payments would translate to if you bought a house now compared to the last few months before:
As you can see, every little increase counts. If you buy a house now compared to when rates were still relatively low in January, you’re now paying $522 more per month, or essentially $6,264 more per year, which adds up in the long run .
Houses are still selling
Although there are rumors that higher mortgage rates combined with rising home values may eventually cool the housing market, especially with low inventory – not necessarily the case in Phoenix – where the market is still robust and competitive!
According to Cromford Report analysts, supply has been increasing around the metro since January with 400 new single-family listings in Scottsdale, 180 in Buckeye and 160 in Chandler.
Cromford notes that the value of an average home has increased by $164,757 (a 47% increase) since this time last year. With higher home prices and mortgage rates, some potential buyers who are in the affordable housing income brackets will not qualify for their loans and are likely unable to bid on demand, which is often necessary in this market to make a competitive offer.
That said, we still see multiple offers on homes in the Metro, with sale prices exceeding list prices and properties selling within the first two weeks or even days of listing.
What can you do?
Interest rates have already increased by 1.5% this year, which is significant and a game-changer for many households forced to review their finances closely. The general rule is that for every 1% increase in interest rates, you as a consumer lose 10% of your purchasing power, because a much larger portion of your payment will cover the costs associated with the interest rate. higher.
If you already own a home and are wondering if you should refinance, the truth is the window has closed for many. However, it’s worth refinancing if you can get your interest rate reduced by at least 0.75 to 1 percentage point. This can lower your monthly payments by at least $500 or more.
The best thing you can do right now as a buyer is to have a trusted realtor and financial lender work together to help you find the best strategy moving forward. If you’re unsure where to start with a lender, we’re happy to provide some recommendations.
An important step that can help is to check with a lender if you qualify for a mortgage rate lock. A lock essentially puts a hold on an interest rate between when you make an offer and when you close. A lender can help you determine if it’s worth locking in a rate in the future, without knowing where the rates will be at the time of closing.
Even though mortgage rates are high right now, if you can make a financial commitment to homeownership for at least the next five years, you can save money in the short term through tax deductions. Also, as interest rates rise, we see those who were barely able to buy pull out of the market. If you can still afford to buy, that means less competition for you. Also, the fewer buyers there are, the more we will see the market clearing out. As buyers dwindle and more homes come on the market, we can see the needle move from a “seller’s market” to more balance, which improves your ability to negotiate. and get a fair deal as a buyer. Lower demand from buyers will also eventually lead to a lowering of the upward price trajectory. At least for now, on the horizon we still expect home values to rise in the greater Phoenix metro area, but lower demand will slow the sails of appreciation.
At Halpern Residential, it’s important for our team to stay on top of these unprecedented trends in the housing market. We understand our dynamic market like no other, and ultimately, we roll up our sleeves and hustle with you. The truth is, real estate isn’t black or white – much of it is gray – so even if you think buying a home is out of reach, our experience and thought leadership can help you make make buying a home work in your favor.
Contact Halpern Residential today and take the giant leap of owning your dream home in one of the most desirable locations in the country.
Trevor H. Halpern, JD is North&Co’s #1 Independent Agent, based in Phoenix. and the CEO of Halpern Residential real estate group. As a native of Phoenix, Halpern’s in-depth knowledge of people and property has enabled him to create client success in all areas of the city. As a graduate of ASU’s College of Law, Halpern prides himself on delivering high-level strategy, effective negotiations, and precise tactical execution. Since 2011, Halpern has sold over $130 million in real estate and is in the top 1% of real estate agents in the Greater Phoenix area.