Published September 9, 2019

How Can Home Buyers Make Sense of Interest Rates?

Staff Writer

Content Specialist at Effective Agents

Interest rates have been on somewhat of a wild ride since the end of 2015. At that time, the Federal Reserve started raising rates, and since then, there have been several rate hikes. Before the end of 2015, rates were steadily low at points near zero for years following the Great Recession as part of an effort to promote recovery and spark growth. The Fed doesn’t determine moves in mortgage rates, at least not directly, because they deal with short-term rates. However, what the Fed does plays an indirect role in mortgage rates. Where do rates and particular mortgage rates stand now, and what does the future look like?

How Do Interest Rates Affect Homebuyers?

The typical theory with interest rates and the real estate market is that when rates go up, it can be more challenging to both buy and sell a home. It's more expensive to buy and harder to sell as a result. On the other hand, the opposite can theoretically happen with low interest rates. As mortgage rates go up, it’s less affordable to buy a home, and it can reduce someone’s purchasing power if their interest rate is higher than it would have been a year earlier. From the seller’s end, there are direct effects of rising interest rates too. If someone wants to sell their house at a certain price, they can try, but an increase in mortgage rates can diminish the market value of a property and can cut into profitability. Rapid increases in interest rates can cause slowdowns in the real estate market in general.

What Are Mortgage Rates Currently?

While the end of 2015 did usher in rate hikes for the first time in years, that looks to be shifting now. Recently, based on some weaker economic indicators, mortgage rates have declined to the lowest level since October 2016. The 30-year fixed-rate mortgage hit an average of just under 3.50% at the start of September, putting it nine basis points lower than the week before. Rates for 30-year home loans have gone up nine times this year. Otherwise, they’ve either stayed the same or gone down week-over-week. For the 15-year fixed-rate mortgage, there was a decline of 6 basis points, leading to an average rate of 3.00%. Mortgages have a general trajectory that follows the 10-year Treasury note, and the yield on that has fallen since the middle of August. Even so, there have been some signs it could move upward again because of possible trade talks between the United States and China.

What Can We Expect for the Rest of 2019?

All these numbers may leave home buyers and also sellers what to expect for the rest of the year. It looks as if the Fed will cut interest rates by 25 basis points at the end of September because even though the fundamentals of the economy remain strong, there are some risks that could impact economic strength. If the Fed does indeed cut short-term rates, the real estate market could see more declines in mortgage rates this fall, which may be welcome news to people planning to buy or sell. If you want someone to help you navigate the real estate market, connect with a top-selling Realtor on EffectiveAgents®.

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