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Rates for home loans marched even higher this week, adding to the headwinds for buyers in an intensely competitive housing market.
The 30-year, fixed-rate mortgage averaged 5.81% for the week ending June 23, up 3 basis points — one-hundredth of a percent — from the previous week, according to Freddie Mac. A year ago at this time, it averaged 3.02%.
The average 15-year, fixed-rate mortgage was 4.92%, up from 4.81% last week and 2.34% a year ago.
Those rates do not include fees and other costs associated with obtaining home loans.
Related: Compare Current Mortgage Rates
What’s Ahead for Mortgage Rates
As rates have risen, home sales have declined. Sales of previously-owned homes fell 3.4% in May compared to a month earlier and dropped 8.6% from a year ago, according to the National Association of Realtors (NAR).
“Further sales declines should be expected in the upcoming months given housing affordability challenges from the sharp rise in mortgage rates this year,” NAR Chief Economist Lawrence Yun said in a statement. “Nonetheless, homes priced appropriately are selling quickly.”
It’s not just higher rates driving an affordability challenge that’s blocking many people from owning a home. The median existing-home price was $ 407,600 in May, up 15% compared to a year ago. It was the first time in recorded history that the median sale price was above $ 400,000.
Across the country, higher mortgage rates and prices have driven the median monthly mortgage payment up to $ 1,897 in May. That’s $ 513 more per month, or a 37% increase, in the first five months of 2022, according to data released Wednesday by the Mortgage Bankers Association (MBA).
Economists at MBA expect mortgage rates to moderate from here, averaging just 5% for the full year in 2022 and ticking down slightly next year. If you’re shopping for a home and have the ability to be a patient, it might be worth waiting for rates to decline slightly.
Buyers Have to Be Strategic
In such a challenging market, buyers have to be prepared.
That means taking all the time necessary to get your credit profile as strong as possible. Doing this before shopping for a home will help you considerably when prequalifying for a mortgage. Once you prequalify, keep in contact with your lender to make sure you still qualify for that amount even as market conditions change.
In the Lehigh Mountain area north of Allentown, Penn., Realtor Alexa Sanchez has not seen higher impact rates the market yet. For Sanchez and her buyer clients, the challenge is the same as it’s been in recent years: scarce inventory, high prices and lots of competition. Recently, she says, one of her buyers was among 36 bids on a home.
“Now is when they’re ready to buy a home,” despite the higher rates, she says. “They weren’t ready two years ago.”
Sanchez says the most important thing buyers can do is qualify for a conventional mortgage, rather than one backed by a government agency like the Federal Housing Administration (FHA) or the Veterans Affairs (VA) office. Conventional financing can make a buyer seem more attractive to a seller, since FHA and VA loans may be seen as less certain to close, or at least close on time.