After months of increasing mortgage interest rates, we’ve recently seen rates begin to drop ahead of the spring homebuying season—and that’s great news for potential buyers.
Mortgage rates are more influenced by the bond market, mortgage-backed securities and more specifically, the 10-year Treasury yields than they are when the Federal Reserve raises the Prime Rate. When the Prime Rate rises, your variable interest credit card rate will likely rise with it, as well as rates for car loans and personal loans. However, fixed mortgage rates tend to follow in the direction of 10-year Treasury yields and when those yields are low, as they were before inflation gripped the economy, mortgage rates are typically lower. But when it is more expensive to buy a bond, as it is when the Prime Rate rises, there is not much demand for them, the bond prices drop, and the yields increase to compensate, making mortgage rates go higher with the yields.
This is how, when the Fed kept raising rates over the past year to battle inflation, it did have indirect effects on mortgage rates, and they rose above 7%.
As we inched closer to spring, mortgage rates began to lower and there were signs it could continue. When the events surrounding Silicon Valley Bank and Signature Bank unfolded, speculation rose that the Fed would slow their rate hike pace, which they did, although they still raised the rate slightly but not nearly as high as previously.
By the end of March, mortgage rates had continued to lower, new mortgage applications were on the rise and refinances were boosted as well.
This is all great news for potential homebuyers, but there are some steps they should take to have the best experience and results possible.
What it Means
The market is still challenging, with prices and demand high for homes. However, a recent WSFS Mortgage study found optimism among regional homebuyers, with 42% believing there are homes available that they want.
More than three in 10 (34%) of potential first-time homebuyers planned to buy their first home or new home in 2023 if mortgage rates decreased, and with the decreases happening this spring, it shapes up to be competitive. And among current homeowners, 30% planned to buy a home if rates fell and 35% plan to use the equity they’ve built, furthering the level of competition.
What You Should Do
The best steps a potential homebuyer can take include:
- Find a local lender and realtor who know the area well and can guide you.
- Explore all financing options with your lender, including down payment and grant programs, and first-time homebuyer programs.
- Sit down with someone you trust, such as a family member, or a financial professional to review your finances—knowing how much home you can afford is key to making winning offers.
- Be steadfast—determine your top needs and wants, don’t let secondary “nice to haves” dictate your decision.
Keep in mind that the market may continue to be up and down over the next few months, but staying focused on your goal and working with a local team can help you achieve or continue the dream of homeownership.
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