As mortgage rates rise, will the real estate market cool off?

Mortgage rates are no longer at record lows, but it’s still an excellent time to buy a home. Here are four reasons why. (iStock)

The ongoing coronavirus pandemic has caused global challenges, and it continues to affect the personal finances of many Americans. According to a Pew Research Center survey, 44% of respondents believe it will take them three years or longer to recover financially. 

The pandemic has also had a significant impact on the national home market. According to the National Association of Realtors, existing home sales fell in March, dropping 3.7% from the previous month. Month over month, those sales dipped in all major parts of the United States, and the median existing home sales price rose to nearly $330,000.

The global health crisis’s effect was also felt on home market conditions and home prices. Average mortgage rates that are at their lowest level in years, meaning that for interested home buyers, there’s never been a better time to purchase a home. You can explore your mortgage options by visiting Credible​ to compare rates and lenders.

But over the past month, rates have been slowly rising, and some experts believe these market trends will continue for the remainder of 2021 for single-family homes and commercial real estate. As mortgage rates go up, will this temper down the booming real estate market?

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What are the current mortgage rates according to market data?

Freddie Mac has tracked the weekly and monthly mortgage rates since 1971. Here are the current mortgage rates as of March 25:

  • 30-year fixed-rate: 3.17%
  • 15-year fixed-rate: 2.45%
  • 5/1 ARM: 2.84%

These are still pretty competitive rates, but they’re slightly higher than the rates we’ve seen over the past few months. For comparison, here were the rates as of February 25:

  • 30-year fixed-rate: 2.97%
  • 15-year fixed-rate: 2.34%
  • 5/1 ARM: 2.99%

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Why it’s still a good time to buy a home

While it’s impossible to predict exactly what the total housing market will do, most experts believe we’ll see rising mortgage rates for the remainder of 2021. But even if that happens, now is still probably a good time to buy a home. Here are some reasons why, and if you think you’re ready to shop around for your interest rate, consider using Credible to help you easily compare rates from the comfort of your own home.

Less competition: Many borrowers find it difficult to purchase newly listed homes due to tightened credit restrictions and a limited housing supply of entry-level homes within the total housing inventory. So if you can meet the borrowing restrictions, you may face less housing demand during the home buying process.

Virtual showings: One of the ways COVID has affected the real estate market is that many first-time buyers are wary of in-person showings. For that reason, it’s easier than ever to conduct tours virtually after seeing home listings. This can save interested borrowers a lot of time and help you research the property more effectively. 

Potential for good deals: In times of economic uncertainty, home builders and developers need as much cash flow as possible. So, it’s likely that borrowers can negotiate for a better deal on their home sale and affordable monthly mortgage payments from mortgage lenders. 

Rates are still low: Although still-rising mortgage rates aren’t at the record lows we saw from December through February, they are still much lower than we’ve witnessed historically. Purchasing a home for rates as low as 3% is a deal that was practically unheard of in the past. As homes are selling within residential real estate, home buyers can still lock in favorable rates within the hottest housing markets.

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If you’re thinking about buying a home and want to see your expected costs, this online mortgage calculator can help.

How will the rates affect the market?

The economy is on the road to recovery after the pandemic, and housing market predictions are that mortgage rates are expected to continue to rise over the next year. According to the Mortgage Banker’s Association, a 30-year fixed-rate mortgage will likely reach 3.4% by the fourth quarter of 2021. 

However, even if rates rise to the highest forecasted level, this is still an incredibly attractive rate for most borrowers. The housing boom is likely to continue, with the only real disadvantage being the limits on housing inventory.

The bottom line

It’s unlikely that we’ll return to the record-low mortgage rates we saw around the beginning of 2021. However, rates will likely stay low for the remainder of the year, making now a good time for first-time homebuyers to purchase a home.

Whether there’s an increase in home sales, home buyers or price growth, the best thing you can do if you’re interested in homeownership is compare your options among different lenders. If you visit Credible, you’ll be able to touch base with experienced loan officers and get all of your mortgage questions answered. Credible makes it easy to shop around and find the lowest rates and fees.

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Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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