Are higher mortgage rates here to stay? When will the rates come down? How much will the rates come down? If you’re a buyer or thinking about moving, you are probably thinking about when the rates will come down, how soon, and how much. In this video today, we are going to explore the impact of mortgage interest rates on your future or immediate purchase. Let’s dive into it.

As you are aware and if you are following the rates and what’s happening in the housing market, the rates have been going up and up and up since the last three years. In fact, in the last 23 years, it’s been the highest. It’s at almost 7.5% right now. Back in the year 2000, January 2000, they were around 8.64% and as of about a week ago they’re at 7.57%, so it’s been the highest. So the question is how much more will it go or how much less will it come down and how soon? 

In the real estate industry, we call the interest mortgage rates when they go up, a ticking time bomb. It can really stop the housing market because the higher the interest rate, the less the affordability and the more payments and the less chances of you qualifying. So it may put a slowdown, as it has already put a slowdown.

As you may know, there’s a big housing shortage. And the number one reason is that a few years ago when the rates were less than 3%, many homeowners who had loans refinanced their rates to 2.5% 15% loan, 3% loan, and 4% loan. All those sellers are now saying hey, I have such a low mortgage rate, I’m not going to move. Because if I move one, I have to pay a higher price for the house that they’re buying which they’ve gone up 20 30% in the last two or three years. At the same time, if they have a 3% rate loan, they’re going to pay seven and a half percent rate loan. So they are not moving, which has given us a big housing shortage and a slowdown in the housing market. And because of the shortage, it’s a catch-22. Because of the housing shortage, buyers are still buying because they have to move, because of relocation family growing or downsizing or upsizing or whatever the reason. So they are paying higher prices. And because of the shortage, the prices keep going up and up and up because there’s a small amount of homes and a lot of buyers out there. So despite the higher prices, you might not be able to buy a house because you can no longer be qualified to buy a house the mortgage rates are too high or you just cannot afford it.

There are still other buyers buying homes. So the lower interest rate gave fuel to the housing shortage and the housing shortage is fueling the home prices. So it’s a catch-22 22 as I mentioned earlier, back in 2021, end of December 2021, rates were anywhere from two and a half percent to three and a half percent, which is very low. As of October 12, 2023, the 30-year fixed rate was 7.57% and the 15-year loan was 6.89%. So you can see that they’ve gone up significantly. So if you’re thinking of buying a house, it’ll almost, I would say, double your house payments. Let’s look at how the higher interest rate will impact you, or if you’re thinking about moving in the next few months or the next few years. How much will it have an impact on you? Well, it will have a significant impact on you. About a year ago there was a prediction when the rates were six and a half or 6.75%, there was a prediction by the experts, so-called experts, that as the inflation rate goes down, and as of today or right now, the rate is about 3.7%, which is way down from 8%. They were saying that the interest rate follows the inflation rate and the inflation has come down, but the rates have not come down. So what kind of impact will it have on your housing purchase or your mortgage payments? Let’s look at those.

The Impact of Changing Mortgage Rates. If you’re looking to buy a home, you should know even a small change in mortgage rates has an impact on your purchasing power. This chart shows how rates generally affect your monthly payment. I’m going to use some scenarios or some purchase prices and interest rates and show you how a slight change in interest rate will affect the payments that you have. It shows the home loan amount of $250,000, a fixed mortgage interest rate. If it was 6%, then your monthly payment, which is the PNI principal and interest would be $498.88. Let’s say that rate went up to 7% for a $250,000 house. At 7%, your payment jumps to a difference of $165. Now, when you’re trying to qualify for a house, almost $200 of payment will make a big impact not only on your qualification but on your lifestyle if you’re buying a house in the $250,000 range. Now, let’s look at the same scenario. Same interest rate on a house or on a loan amount of $800,000. Assuming somebody put a $200,000 down payment, which brings down to the loan amount of $800,000 at 6% if it was 6%, your payment would have been 47 96.40. And at 7%, for the same interest rate or loan amount of $800,000, your payment would jump to 53 22.42, which is a difference of $526.

Well, you know, these days that’s actually a car payment. So if you bought a house at 6% or 5% and if you buy it today, you’re pretty much paying for a house and a car payment. That’s a big impact on buying a house today. But it all boils down to do you need to buy a house. A lot of people are buying a house because there’s an urgency to buy a house. Maybe you’re paying too much rent. Remember, as the house prices go up, rent prices go up. So if you’re paying $4000, $5000, $2500 a month in rent, why don’t you pay a mortgage? You’re paying somebody’s mortgage, you’re paying your landlord’s mortgage. So you have to look at the long-term benefits of purchasing a home. Yes, interest rates are high, home prices are high, but your interests are high too. You’re not getting any tax benefits. So you may want to sit down with your accountant a realtor or a lender and come up with a strategy to see if this is the best time to buy or not.

Despite the home prices, despite the higher interest rate, because as I mentioned to you earlier, buyers are still buying, there’s a shortage of homes. And today almost November 2023, it’s October 16 or 17 today, and there are bidding wards still going on. Figure that one out. So the big question that comes to mind is when can I buy a house? What if I can wait to buy a house or wait for the interest rates to fall? Well, let’s look at the history of the interest rates. If we look at these mortgage rates, starting in April of 1971, the interest rates were 8%. Today they’re almost at 8%. They’re 7.18%. So almost 50 years later, we’re going from 8% coming back to 8% today. The peak interest rate was 18.63. Back in 1982. Of course, I was not in business at that time, but I heard that people were still buying homes at that time at 12%, 14%, 18%. But one thing I want to mention to you, of course, these charts may not mean anything to you, but if you look at the 52-year average mortgage interest rate, it’s at 7.7%. Yes, the average is 7.7%. Yes, I understand that you may have seen the 3% 4%, which is very, very, very low. But some of the consumers maybe 15 years ago saw a 10%, 12%, or 15% interest rate. So for them, 7% is a good interest rate and for those who saw 3%, it’s a higher interest rate. If you go by the average, it’s about 7.7% 52-year average. So even if you buy today, it may be okay. So please don’t get hung up on interest rates and house prices. And what you don’t want to do is chase the market. 

Don’t wait for the market because you are never right. Or we, I don’t mean you, but we in general can never chase the market. The interest rate, the inflation are governed by many factors. Inflation is governed by the economy, the consumers, the supply, the treasury bills, the bonds, the global market, and the local market. So there is no way to know what’s going to happen. Right now we’re in a war. Two or three countries are in a major war. How will that impact our economy? Well, it’s impacting the oil and the gas and they are very high. So travel is expensive, air tickets are expensive, and gas prices are expensive. Consumer goods are expensive because the imports are less. So you can never predict the market. You can never chase the market.

So how is this impacting the buyers or people who want to move? Well, Urban Institute explains how this is impacting buyers and sellers right now. When mortgage rates go up, monthly housing payments on new purchases also increase. For potential buyers, increased monthly payments can reduce the share of available affordable homes. Additionally, higher interest rates mean fewer homes on the market as existing homeowners have the incentive to hold on to their homes to keep their low interest rates. Here’s another report that you may want to consider strongly. It says that if you’re in the market for a new home, experts typically recommend focusing on your search for the right home purchase, not the interest rate environment. So again, we come back to the questions. Where will the interest rates go from here? Are they going to go up or are they going to go down? As I mentioned earlier, there are too many factors inflation, housing supply, consumer supply, treasury bonds, treasury bills, stocks, global wars, global economy. So there is no way to predict. So even if you read a report that they’re going to go up or down, don’t believe it. Most reports are wrong because this is one thing that’s unpredictable. You should buy when you are ready, willing, and able to buy.