The spookiest season of the year could also bring more weirdness to mortgage rates and an uncertain, if not scary, time for borrowers.
This is because rates have jumped significantly over the past few weeks. As of September 28, the 30-year fixed rate was on track to reach 7%, while the 15-year fixed rate hovered around 6%. Even the 5/1 Variable Rate Mortgage (ARM) looked less attractive, up 36 basis points last week to over 5%.
Will the rate landscape remain scary this month, or will there be more treats than tips for borrowers? We asked for expert advice.
“A Unique Moment”
If you are a borrower, you can generally expect the same more expensive financing this month. Inflation is still weighing on the economy – price increases in August remained at their highest level in 40 years – forcing the Federal Reserve to maintain its own pressure on rates. With five rate hikes to its name since the start of the year, the central bank is poised to raise rates again in November and December.
Unless inflation and Fed policy change significantly, for mortgage rates, “the bias would be to the upside,” says Greg McBride, chief financial analyst for Bankrate.
“Interest rates are rising at a faster rate than most of us have ever seen in our adult lives, and together with the amount of global debt, that creates an awkward combination,” McBride says. “Volatility and uncertainty are to be expected, but we are getting to the point where it is worth expecting the unexpected. It’s a unique moment. »
For October, McBride expects the 30-year fixed rate mortgage to average between 6.5% and 6.8%, and the 15-year fixed rate to average between 5.5% and 5. 75%.
“Rates will continue to rise, as we have seen little to no change in the recent rate of inflation,” says Dennis Shirshikov, content manager for Awning, a portal for single-family investment properties. For October, Shirshikov expects the 30-year to average just below 7% (6.95%) and the 15-year to average 6.5%.
Along with the Fed’s response to inflation, fixed-rate mortgages are reacting to the movement in the 10-year Treasury yield, a general economic indicator that has risen steadily of late.
“Over the past month, rates have been pretty predictable as the 10-year U.S. Treasury rate continues to rise,” says Kyle E. Scheiner, partner at New York-based Romer Debbas in the Residential Banking division. . “I wouldn’t expect any surprises for the rest of the third quarter.”
Analysts recently polled by Bankrate predict that the 10-year yield will remain relatively flat over the coming year. Historically, mortgage rates have been about 2% above yield, but that has widened in recent months.
“For the rest of the year, I expect mortgage rates to stay closer to 6% in light of recent Fed rhetoric and investor concerns about prepayments and balance sheet reductions. the Fed, which are keeping mortgage spreads high,” Selma said. Hepp, deputy chief economist for CoreLogic.
“Persistent fears for the economy”
In the housing market, builder confidence remains sour and home sales weak this year. While the meteoric price growth has begun to moderate, the number of registrations is still insufficient.
“The sectors of the economy that are most interest rate sensitive are certainly showing the effects of our tightening, and of course the obvious example is housing, where you’re seeing a drop in activity of all kinds and house price increases falling,” the Fed said. President Jerome Powell said after the policymaker’s last meeting.
However, various other forces could push rates one way or the other in the coming weeks, including the continued geopolitical instability with the conflict between Ukraine and Russia, and now the unrest in Iran.
For now, however, the biggest influencers remain the economy and the Fed.
“There are three main factors affecting the market today: inflation expectations, economic growth and Fed policy,” says Nadia Evangelou, senior economist and director of forecasting for the National Association of Realtors. “Inflation and higher interest rates generally push yields higher as investors demand a higher yield. Still, concerns about economic growth may dampen the pace of the upside…the bond market is showing signs of persistent fears for the economy.
The Fed could hike rates as much as 100 basis points at its next meeting in November, Scheiner says, but “will have to weigh that move against depressing reports from homebuilders and constant lobbying from the National Association of Realtors warning that further rate hikes will essentially wipe out the entire housing market.
“At some point, I would think the executive branch needs to step in and consider reintroducing programs like HARP to re-encourage home buying,” Scheiner says.
‘Time is on your side’
You may be feeling some urgency if you’re planning to buy a house or take out a mortgage in October – and that may or may not be warranted.
The housing market will slow further, so even if prices don’t change, you’ll at least have the opportunity to do your due diligence before making the biggest purchase of your life. But don’t be in a hurry.
—Greg McBrideChief Financial Analyst, Bankrate
“Time is on your side,” McBride says. “The housing market will slow further, so even if prices don’t change, you’ll at least have the opportunity to do your due diligence before making the biggest purchase of your life. But don’t be in a hurry.
“Now is the time to buy for homebuyers,” Shirshikov says. “Rates are not going down and the housing market is not going to collapse.”
For current homeowners, unless you got your mortgage over 10 years ago, you’re probably better off waiting than trying to refinance now. Instead, consider a home equity line of credit (HELOC) or home equity loan.
“If you need cash, getting it out of your home via a home equity loan or HELOC would still be the cheapest way, even with current rates,” Scheiner says, adding “if you have an ARM that’s on the point of adapting, it may be cheaper to allow him to adapt and continue to take it month after month before deciding to pull the trigger on a refinance.