What Rising Rates Really Mean for Buyers

Mortgage rates are back in the headlines, and if you are thinking about buying a home, you may be wondering what that means for you.

As of September 17, the average 30 year fixed mortgage rate was 6.95%, up from 6.76% the previous week and 6.26% one year ago, according to Freddie Mac. That is the highest average rate in nearly 18 months. The Federal Reserve also raised its benchmark interest rate by a quarter percentage point this week. However, the Fed does not directly set mortgage rates, so its decision does not mean mortgage rates will automatically rise by the same amount. Higher rates do affect affordability. When the interest rate goes up, the same home comes with a higher monthly payment. That can cause buyers to lower their price range, which can reduce competition and potentially give buyers more negotiating power. But higher rates do not automatically mean home prices will drop. Sellers still determine what they are willing to accept, and some homeowners with low existing mortgage rates may choose to stay put rather than sell.

This is why I encourage all buyers to look at the entire picture instead of making a decision based solely on the rate. What is the purchase price? What will the total monthly payment be? Is the payment comfortable for your budget? And does the home actually fit your needs? Most importantly, remember that if you purchase a home and mortgage rates fall in the future, refinancing may be an option, depending on the circumstances and costs involved at that time. There is no crystal ball for where rates or home prices will go next. The goal is not to predict the perfect moment. It is to understand what you are signing up for, make sure the payment works for your budget, and make an informed decision based on the facts.