Five Mortgage FAQs Answered
I’m sure you’ve heard talk in the news about a rise in interest rates and how they affect mortgage rates. But what impact is it really having on the real estate market? Read on to find answers to five frequently asked questions about mortgage rates in 2023.
Are mortgage rates affected by interest rates?
The Federal Reserve Board (FED) controls short-term interest rates and increases or decreases them based on the state of the economy. While mortgage rates aren't directly tied to the FED rates, when the FED rate changes, the prime rate for mortgages usually follows suit shortly afterward.
Mortgage rates are high right now. Will they ever go down?
When potential buyers ask me this question, I lean on predictions from local experts here in Birmingham and national experts in the mortgage industry.
Long story short - mortgage rates will eventually decline, but there’s several factors to consider. The current political climate, war, inflation, and fear of a recession push the FED to raise interest rates. And as we discussed before, the prime rate for a mortgage typically follows suit.
So, yes, mortgage rates will eventually decline, but there’s no telling when.
What does all of that mean for real estate?
After years of low mortgage rates and steadily increasing home prices, many have predicted that home prices would stagnate, decrease, or crash (choose your level, LOL). But what we’ve seen here in the Birmingham, Alabama, market is that the home prices are slowly increasing. Why? Because there aren’t many homes on the market!
Are mortgage rates too high to buy a home?
Don’t let high mortgage rates scare you! I’m sure you’ve heard in the news or from your parents that 1985 mortgage rates clocked in at 15%. Historically, the rates have been much higher, yet people still bought and sold homes!
Okay, so will I ever be able to buy a home?
Yes! When I began my career in real estate in 2018, all my colleagues were talking about was, “There’s nothing on the market!” The rates at that time hovered around 4%, but that didn’t mean much as buyers flooded the market with a scarcity of homes available for sale.
My point here is that the market fluctuates. And just like 2018 had challenges, we have some in 2023 too. Mortgage and interest rates will eventually go down, and, in my opinion, that will most likely happen in 2024. But how long that takes depends on so many factors that are out of the control of REALTORS® and mortgage agents.
