If you're thinking about buying a home or you already own one, you're probably keeping a close eye on mortgage rates and home prices. There’s a lot to consider, especially as the real estate market in the DMV area continues to surprise and evolve.
You’d think that after the Federal Reserve cut interest rates by half a point last month, mortgage rates would start to drop. But guess what? Mortgage rates jumped higher instead! Freddie Mac reports the average 30-year mortgage rate recently rose to 6.4%, which is over a quarter-point increase from just two weeks ago.
It’s not exactly what buyers waiting on the sidelines were hoping for. But let’s break it down—what’s going on, and what does it mean for you if you're trying to buy a home right now?
Why Did Mortgage Rates Go Up?
Here’s the kicker: The Federal Reserve doesn’t directly set mortgage rates. It influences them, sure, but mortgage rates mainly follow something else: the yield on 10-year Treasury bonds.
Recently, that yield has gone up for a few reasons, including investor expectations that the Fed might not cut rates as aggressively as previously hoped.
The bond market is constantly reacting to economic data. Traders in the bond market pay close attention to reports like jobless claims, business outlook surveys, and retail sales.
Here’s how it works: The market tries to predict what’s coming. Hundreds of economists make forecasts for key economic reports, and those predictions get baked into bond prices before the reports even come out. By the time the official numbers are released, the market reacts to how much they differ from expectations.
Last Thursday, all eyes were on three critical reports, and all of them came in stronger than expected:
Jobless Claims dropped to 241k, when the forecast had been 260k.
The Philly Fed Business Outlook Survey hit 10.3, versus a forecast of 3.0 and a previous reading of 1.7.
Retail Sales rose 0.4%, beating the forecast of 0.3% and a previous rise of 0.1%.
When these stronger-than-expected numbers were released, the bond market reacted immediately. Bond prices fell and yields (which drive mortgage rates) rose. Lenders then adjusted their rates for the day based on those movements, pushing mortgage rates higher—close to their highest recent levels for top-tier, 30-year fixed mortgages.
Plus, lenders have their own costs to cover, so they tack on a margin for profit. Plus, the rate you get depends on your credit score, the loan size, and other personal factors.
Despite the bump, rates are still a full point lower than this time last year. That’s been a silver lining for many homeowners who’ve used the opportunity to refinance their mortgages after buying their homes at higher rates in recent years.
Where Are Mortgage Rates Headed?
Ah, the big question. Unfortunately, there’s no crystal ball, but experts seem to agree on one thing: We’re not going back to the super-low rates of the past.
Remember the days of 3% mortgage rates in 2021? Lawrence Yun, Chief Economist at the National Association of Realtors, says those days are gone—probably for good. Right now, the new normal seems to be hovering around 6%, with some forecasts predicting a slight dip to 5.8% next year. If we’re lucky, we might even hit 5.5%. But brace yourself—it’s equally possible we could see rates climb to 7%.
So, What Should Homebuyers Do Now?
If you’re thinking about buying a home, you might be wondering if you should wait for mortgage rates to drop. But experts advise against trying to time the market—and here’s why:
Refinancing is always an option. If rates fall after you buy, you can refinance your mortgage and take advantage of the lower rate.
Home prices tend to rise over time. Even if mortgage rates go down, if home prices continue to climb, you might not gain much by waiting.
Historically, even buyers who locked in higher rates—like 15% in the early 1980s—still saw their home purchases pay off over time, thanks to rising home values and the ability to refinance as rates declined.
The Housing Market: More Inventory, Less Competition
Here’s some good news for buyers: There are more homes on the market now. A recent report from RE/MAX found the number of homes for sale in September was up 6.4% from the previous month and a whopping 33.6% from a year ago.
Plus, houses are staying on the market longer, which suggests less competition. Seasonally, the market tends to cool down in the fall and winter, meaning you might have a better shot at negotiating or snagging a deal before the spring buying frenzy kicks in.
In fact, Fannie Mae predicts that home sales could increase by 10% next year. That’s encouraging news, especially for buyers looking for more options and less competition.
But Home Prices Remain High
While there are more homes to choose from, home prices are still on the high side. The median home price has skyrocketed about 50% since early 2020, driven by a pandemic-fueled surge in demand. The pace of increases has slowed, but prices haven’t really come down much.
The median price of existing homes nation-wide sold in August was around $416,700, up about 3% from last year.
What’s Next?
The real estate market is a moving target, with mortgage rates, home prices, and inventory all in flux. For buyers, now might actually be a good time to jump in. With less competition and more homes on the market, you could find the perfect home at a better price than during peak buying seasons. And if rates fall later, you can always refinance.
For homeowners, if you bought at a higher rate, don’t lose hope—you might have a chance to refinance and lower your monthly payments as rates settle down in the coming years.
Either way, staying informed about these trends will help you make the best decision for your future. Happy house hunting (or refinancing)!
What’s your next move in the real estate market? Share your thoughts or questions in the comments below. Then reach out to me to talk more about your home purchase or sale!
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