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Navigating The Real Estate Market In High-Interest Rate Times

Navigating The Real Estate Market In High-Interest Rate Times

Mortgage rates are a major factor in buying a home, and the current housing market is a bit of a wildcard. Understanding the nuances of the market can be intimidating for first-time buyers or anyone looking to invest in real estate. However, with enough knowledge, you can make a more informed decision about when to buy and how to get the best rate. In this blog article, we will cover how to evaluate the health of the housing market, current mortgage rates, factors influencing interest rates, and mortgage rate predictions for the future.

Understanding The Housing Market
Key indicators when evaluating the health of the real estate market are the number of new listings coming to the market, the number of sales, the median sold price, and the inventory. 

The number of sales compared to the median sold price will reveal whether or not homes are selling above or below the list price and will give several key data points. Compare this data from month to month, and you can tell whether or not prices are going up or down in your area. 

The active supply of properties on the market represents the inventory. When a seller lists a property, it gets added to the inventory. Realtor associations across the country track the months' supply as the number of months it would take for the current inventory of homes to sell. For example, as of January 31, 2023, Indiana had a 2.0 months supply with 12,620 homes for sale. A balanced inventory ranges from four to six months, where anything under four months is considered low supply and may lead to prices increasing rapidly. To learn more about the Indiana real estate market, visit the Indiana Association of REALTORS®.

What are current mortgage rates?
According to Bankrate.com, as of February 26, 2023, the current average 30-year fixed mortgage interest rate was 6.94%, but this can vary significantly from lender to lender. Higher mortgage rates can drastically reduce the loan amounts for which homebuyers can qualify. Using the calculator at Bankrate.com, a household with a gross monthly income of $8,000, making a downpayment of $20,000 with a loan term of 30 years, yearly real estate taxes of $2,500, annual homeowner's insurance of $1,900, and a mortgage interest rate of 4% can afford a home up to $412,390.72. Whereas if the mortgage interest rate was 6.9%, they could only afford a home up to $304,441.69.

Mortgage rate predictions for the future
Predicting the future of mortgage rates is difficult, but a few factors can indicate what to expect. The economy and inflation will continue to be significant factors. While Federal Reserve policy does not set mortgage rates, it does have an indirect influence. For example, if inflation is high, the Federal Reserve raises interest rates to slow the economy, leading to higher mortgage rates for borrowers, as we've seen this past year. 

Experts differ in their opinions on where mortgage rates will lead this year. Analysts at the Federal Home Loan Mortgage Corporation (FHLMC), also known as Freddie Mac, forecast that "the 30-year fixed-rate mortgage will average 6.4% in 2023, with an average of 6.2% in the fourth quarter. However, the Mortgage Bankers Association (MBA) is more optimistic, predicting that mortgage rates for 30-year fixed-rate mortgages will head downward in 2023 and end 2023 at about 5.2%.

What's Next?
Navigating the mortgage market in high-interest rate times can be intimidating. However, with the proper knowledge and understanding of the market, you can make a more informed decision about when to buy and how to get the best rate. If you are looking for a financial planning partner for your major life decisions, including buying a home, consider working with the advisors at Hurlow Wealth Management Group. Click Here to schedule your complimentary introductory call


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