CHAPEL HILL, NC – Following the Federal Reserve’s decision to hike its key benchmark by 75 basis points in an attempt to lower crippling inflation gripping the United States and head off a possible recession, interest rates for home mortgages have been steadily increasing after having hit record lows during the COVID-19 pandemic; that, combined with inflation and ever-skyrocketing home prices have caused a recent slowdown in home sales nationally.
The average current interest rate on a standard 30-year fixed-rate mortgage hit 5.78 percent this week; up from 5.23 percent just last week and a substantial increase compared to the same point in time one year prior when rates were averaging just 2.93 percent.
Currently, the interest rates on home loans is at its highest point since 2008, causing Americans that are already hurting financially due to the astronomical increases in retail, grocery, and gas prices to rethink the possibility of buying a home at the moment, according to National Association of REALTORS Senior Economist and Director of Forecasting Nadia Evangelou.
“These rising mortgage rates hurt affordability and decrease the purchasing power of many buyers,” she said. “In addition to increasing the amount buyers will pay to borrow for their mortgage, higher interest rates lower their purchasing power since a larger portion of their monthly payment will be put toward interest.”
As a result of the Fed’s decision to raise basis points by the highest amount in 28 years – in conjunction with several other hikes planned throughout the remainder of this year – more buyers are adjusting their shopping budgets for homes, as rising interest rates lower their respective buying power. In January, the average buyer could have afforded a $360,000 home with a $1,400 monthly mortgage payment; now, with the most recent interest increase, that same $1,400 monthly payment would only procure a home worth $270,000.
With interest rates now at 5.78 percent and climbing, buyers’ money is not only worth less, but they will also be paying more over the course of the loan itself; at last week’s 5.23 percent interest rate, the monthly payment on a $300,000 loan – excluding taxes and insurance – would have been $1,653. However, with rates now being 5.78 percent, the monthly payment on the same loan would now be $1,756, which represents an additional $1,236 per year.
But all is not bleak – experts are saying that the high interest increases may simply be a case of over-correction on the part of lenders, and if the Fed’s basis point increase indeed proves to be successful in curbing inflation, mortgage rates could start to come down once again, especially amid a slowdown in demand for home loans, which have decreased 16 percent year-over-year.
Louise Beck Properties, Inc. is a Property Management Company specializing in the areas of Chapel Hill, Carrboro, and Durham, NC. Feel free to give us a call at 919.401.9300 x 4 so we can answer any questions you may have.
