Mortgage Rates Are Rising Again. Here’s What Buyers Need to Know.

If you’ve been watching mortgage rates and waiting for them to come down, the last few weeks probably haven’t gone the way you hoped.

Mortgage rates have climbed back toward 7%, reaching their highest levels in more than a year. And what makes this latest move interesting is that it didn’t happen because the Federal Reserve raised interest rates.

That’s an important distinction, because there’s still a lot of confusion about what actually causes mortgage rates to move.

The Fed Doesn’t Set Your Mortgage Rate

We hear this all the time: “The Fed is meeting next week, so mortgage rates should go up,” or, “The Fed cut rates, so mortgage rates should come down.” It’s not quite that simple.

The Federal Reserve controls a short-term benchmark interest rate, but it does not directly set mortgage rates. Mortgage rates are much more closely connected to what’s happening in the bond market, particularly as investors react to inflation, economic growth and expectations about where the economy is headed. That’s why mortgage rates can move before the Fed ever makes a decision.

Right now, inflation is once again a major part of that conversation. Fed Chairman Kevin Warsh has continued to signal that bringing inflation under control remains a priority, and recent inflation data has given markets more reason to believe higher rates could stick around.

There’s also another factor adding uncertainty: the ongoing conflict in the Middle East. Higher oil prices and disruptions to global supply chains can put additional pressure on prices throughout the economy. When investors become more concerned about inflation staying elevated, bond yields tend to rise, and mortgage rates often move with them.

What If You’ve Been Waiting for Rates to Fall?

This is where buyers have to be careful about trying to time the market. There has been an assumption for a while now that mortgage rates will eventually come down, and they certainly could. But there is no guarantee about when that happens, how quickly it happens, or what the rest of the housing market will look like when it does.

If rates drop significantly, for example, some of the buyers who are currently sitting on the sidelines may come back into the market. More buyers competing for homes can change the negotiating environment pretty quickly.

That doesn’t mean you should rush out and buy a house because rates might go higher. It means the interest rate shouldn't be the only number you look at when deciding whether a home makes sense.

Higher Rates Can Create Opportunities, Too

There is another side to this market that tends to get lost when everyone is focused on the mortgage rate.

Higher rates have made affordability more difficult, and that has kept some buyers out of the market. For buyers who are still active, less competition can sometimes create opportunities that were much harder to find when every decent house had multiple offers.

Depending on the property and the seller, there may be room to negotiate on price, ask for closing-cost assistance or structure a seller-paid rate buydown. We've also seen more inventory sitting on the market longer, which means sellers may be more willing to have a conversation than they would have been in a much hotter market.

None of those things automatically make a higher mortgage rate a good deal. But they are part of the equation. A buyer who gets a lower purchase price, seller concessions and less competition may ultimately be in a better position than someone who waits for a lower rate and finds themselves competing against five other buyers for the same house.

Don’t Just Watch the Rate. Watch the Entire Deal.

Mortgage rates matter. Your monthly payment matters. But so do the purchase price, your down payment, seller concessions, closing costs, how long you plan to own the home and what you can comfortably afford each month. That’s why I wouldn't make a buying decision based on a headline about rates going up or down.

Look at the actual numbers for the house you're considering and the opportunities available in the market right now. Sometimes waiting makes sense. Sometimes the deal you can negotiate today makes more sense.

If you're thinking about buying and trying to figure out whether the numbers work in this market, reach out to the Krop Team. We can look at the whole picture with you—not just the interest rate—and help you decide what makes sense for your situation.