Mortgage rates dropped this past week slightly but are still significantly higher than in early February. After peaking at 7.08% last November, the 30-year fixed-rate mortgage fell to around 6.1% in early February but now sits at 6.6% as of the week ending March 16th.
Mortgage Rates Increased From February Lows
In a press release from March 9, Freddie Mac’s Chief Economist Sam Khater explained why mortgage rates recently increased.
“Mortgage rates continue their upward trajectory as the Federal Reserve signals a more aggressive stance on monetary policy. Overall, consumers are spending in sectors that are not interest rate sensitive, such as travel and dining out. However, rate-sensitive sectors, such as housing, continue to be adversely affected. As a result, would-be homebuyers continue to face the compounding challenges of affordability and low inventory.”
According to Khater, the Federal Reserve’s series of rate hikes fueled a recent increase in mortgage rates. The Fed increased its baseline interest rate by 0.25% on February 2 and will potentially raise rates by another 0.25% after its March 22 meeting. The interest rate hikes have increased mortgage rates over the last five weeks.
The Silver Lining for Buyers
Higher mortgage rates limit a potential buyer’s purchasing power. However, despite the challenges associated with the current market, there are a couple of silver linings for prospective homebuyers.
Mortgage applications hit a 28-year low this month, coming in 44% lower than this time last year. When mortgage rates increase, prospective buyers leave the housing market and delay their search. This shift decreases the number of mortgage applications, creating more opportunities for buyers who continue searching for property. Those buyers then have more homes to consider and less competition among other buyers when it comes time to submit an offer.
Lower demand increases the amount of time a home sits on the market. At this time last year, homes remained on the market for an average of 36 days. As of March 2023, homes now stay on the market for 67 days. In today’s market, selling a property takes almost twice as long as it did last year.
Home sellers may take steps to decrease the amount of time their home sits on the market, and buyers can seize this opportunity. Buyers may submit offers below the asking price, request more contingencies, and even try to negotiate for specific requests. Additionally, homes on the market for over 60 days often sell for about 10% less than the original asking price. Sellers are also more willing to offer concessions such as mortgage rate buydowns when their home is on the market for over two months. While the competitive seller’s market of recent years limited a buyer’s room for negotiation, buyers who decide to face higher interest rates may find more power during closing.
Higher mortgage interest rates push potential buyers out of the market and restrict the budgets of those who decide to buy. However, buyers can take some comfort in knowing that high rates decrease homebuying demand, putting more leverage in the hands of buyers. Those who still wish to purchase property in this market can consult their real estate agent to learn more about their options and negotiation power.