What Do Current Housing Market Changes Mean For You?

In recent housing market news, the last couple of weeks have seen a half-percent drop in the average 30-year fixed mortgage rate from Freddie Mac.

On the heels of potential recession concerns, homebuyers should actually welcome this decline as a good thing, especially considering how mortgage rates have fallen this year.

Below you’ll find a graph of how the average 30-year mortgage rate has fallen from 5.81% to 5.30% in just two weeks, as reported by Freddie Mac:

Graph showing mortgage rates dropping by half a percent from June 23, 2022 to July 7, 2022

So what explains why homebuyers should be taking this dip as a good sign? This is how Senior Economist and Director of Forecasting at the National Association of Realtors (NAR) Nadia Evangelou explains it:

“According to Freddie Mac, the 30-year fixed mortgage rate dropped sharply by 40 basis points to 5.3 percent. . . . As a result, home buying is about 5 percent more affordable than a week ago. This translates to about $100 less every month on a mortgage payment.”

This is connected to a fundamental truth about mortgage rates. When those rates go up, like they have for much of 2022, it has a direct effect on the amount you pay for your monthly payment. When you’re paying more for your mortgage, that has a direct effect on how much you can afford.

The inverse is true, too. When those mortgage rates end up going down, your purchasing power can go up.

To help visualize this idea, take a look at the chart below. You’ll see how a quarter-point or half-point change in your rate will impact the average monthly payment.

Where To Go From Here

If you have been considering buying your first home, or if your current home is no longer ideal for your situation, these mortgage rates could be advantageous. 

How A Potential Recession Could Affect Homebuyers

If the thought of a recession has you worrying about more than just mortgage rates, you’re not alone.

A recent survey revealed that a possible recession is worrying an increasing number of Americans. Hearing the Federal Reserve confirm their commitment to reducing inflation only served to validate those worries. This is due in part to the tools and influence the Reserve would use to be able to slow the economy down.

The idea of a recession is worrying because of its far-reaching impacts. It could affect jobs, businesses, and how we lead our lives. For many homeowners and homebuyers, the question becomes: how would this recession affect the housing market?

Given what we know about how these kinds of economic slowdowns have impacted past home prices, what can we see for the near-term about home finance and the real estate market?

According to Mortgage Specialists

“Throughout history, during a recessionary period, interest rates go up at the beginning of the recession. But in order to come out of a recession, interest rates are lowered to stimulate the economy moving forward.”

The historical data proves this point. When we look back at economic slowdowns from now to the early 1980s, a pattern of what happens to mortgage rates becomes clear:

mortgage rates recessions - mortgage rates decrease when the economy slows

As you can see in the chart above, mortgage rates decrease when the economy slows. To help explain this trend, this Fortune.com article shares:

“Over the past five recessions, mortgage rates have fallen an average of 1.8 percentage points from the peak seen during the recession to the trough. And in many cases, they continued to fall after the fact as it takes some time to turn things around even when the recession is technically over.”

It’s worth saying that history won’t always repeat itself. Still, that doesn’t mean we can’t learn from it.

The economic slowdown is a necessary part of helping to bring inflation under control. Still, that’s not always a net negative for housing. Historically it’s meant lowering the actual cost for home finance, which allows more people access to homeownership.

How Should The Recession Affect Your Home Buying Plans?

Recession-related concerns are certainly rising. If the economy were to keep slowing down, it would seem likely that mortgage rates would drop, too. That would make this an ideal time to either refinance or to buy a home.

It’s true that we can’t predict the future, but with the right people on your team, you can make the best possible decision for you and your family. If you’re wondering how to navigate these housing market changes, then get in touch today so we can plan for your homeownership goals.