Home buyers have found themselves shopping for a mortgage during the most volatile interest cycle in more than 30 years, said real estate brokerage firm Redfin today, and that means those buyers are in for a roller-coaster ride.
In fact, the typical buyer looking for a $500,000 home saw their potential total mortgage payments fall by $64,000 from July to August, only to then skyrocket by $118,000 in September.
“The challenges home buyers face in today’s market go beyond the dwindling affordability caused by high mortgage rates and home prices,” said Taylor Marr, Redfin’s deputy chief economist. “The whiplash in mortgage rates between when home buyers set their budget and when they make an offer is also making it extraordinarily difficult to plan ahead.”
A buyer who started searching in July and closed on a new home in September saw their potential mortgage rate fluctuate by roughly half a percentage point every four weeks, the company said.
The Federal Reserve hiked interest rates by 75 basis points last week—its third big hike in a row—and predicted rates will reach 4.4% by the end of the year. “While Freddie Mac’s widely followed weekly data now has mortgage rates at 6.29%—the highest since 2008—a separate daily gauge has them as high as 7.08%,” Redfin said.
It’s “the most volatile three-month period since 1987,” when mortgage rates ricocheted wildly after surging to a record high of nearly 19% earlier in the 1980s (when the Fed was struggling to get record inflation of 14.6% under control).
Today, the U.S. inflation rate is 8.52%, and the Federal Reserve is struggling for the same reasons—which means another 75 basis point increase is expected when the central bank meets in October.
Some Are In For A Shock
That’s meant wild swings in prices—not only for what home buyers can afford but what they’ll pay if they hold their mortgage to term.
For instance, the typical buyer who started looking for $500,000 homes in early July expected their monthly payment to be $3,051, Redfin said. That equates to a total of $1.098 million over 30 years, assuming they make a 20% down payment at the prevailing 5.7% mortgage interest rate at the time, Redfin reported.
Those who found their dream home in early August saw their monthly payment fall to $2,874 at the prevailing 4.99% interest rate, which saved them $64,000 on their total cost of $1.035 million if they held the mortgage 30 years.