Today’s Mortgage and Refinance Rates: May 31, 2023 | High Rates Make for a Tough Homebuying Season

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It’s looking like this year’s homebuying season is going to be an expensive one for buyers. Mortgage rates are currently spiking, and home prices are increasing again after dropping briefly on a monthly basis late last year.

The latest S&P CoreLogic Case-Shiller Home Price Index release showed US home prices increasing 1.3% month over month in March. Prices started falling last July as demand slowed. But in February and March, home prices increased.

“The CoreLogic Case-Shiller Home Price Index shows counterintuitive strength with relatively strong home price growth,” Selma Hepp, CoreLogic chief economist, said in an emailed statement. “Spring homebuying season is characterized by stronger return of buyers than sellers which created another competitive market environment and one in which the very meager inventory of existing homes is putting buyers in a position of having to pay over the asking price and as a result driving early spring price gains well beyond what is traditionally seen during this period.”

High mortgage rates have created a lock-in effect for current homeowners who might otherwise be interested in listing their homes on the market. Because these homeowners would likely take on higher mortgage rates if they were to buy a new home, they’re opting to stay in their homes, which further limits the amount of inventory available to homebuyers. This has been pushing home prices up.

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Mortgage Rate Projection for 2023

Mortgage rates started ticking up from historic lows in the second half of 2021 and increased over three percentage points in 2022.

But many forecasts expect rates to begin to fall later this year. In their latest forecast, Fannie Mae researchers predicted that 30-year fixed rates will trend down throughout 2023 and 2024.

But whether mortgage rates will drop in 2023 hinges on if the Federal Reserve can get inflation under control.

In the last 12 months, the Consumer Price Index rose by 4.9%. Inflation has consistently been decelerating for several months now, which means that the Fed may soon be able to stop hiking rates. This means that mortgage rates aren’t likely to increase significantly any time soon, and they’ll likely continue to cool along with prices.

For homeowners looking to leverage their home’s value to cover a big purchase — such as a home renovation — a home equity line of credit (HELOC) may be a good option while we wait for mortgage rates to ease. Check out some of our best HELOC lenders to start your search for the right loan for you.

A HELOC is a line of credit that lets you borrow against the equity in your home. It works similarly to a credit card in that you borrow what you need rather than getting the full amount you’re borrowing in a lump sum. It also lets you tap into the money you have in your home without replacing your entire mortgage, like you’d do with a cash-out refinance.

Current HELOC rates are relatively low compared to other loan options, including credit cards and personal loans. 

When Will House Prices Come Down?

Home prices declined a bit on a monthly basis late last year, but we aren’t likely to see huge drops this year, even if there’s a recession.

Fannie Mae researchers expect prices to decline 1.2% in 2023, while the Mortgage Bankers Association expects a 0.6% decrease in 2023 and a 1.4% decrease in 2024.

Sky high mortgage rates have pushed many hopeful buyers out of the market, slowing homebuying demand and putting downward pressure on home prices. But rates may start to drop next year, which would remove some of that pressure. The current supply of homes is also historically low, which will likely keep prices from dropping too far.

Fixed-Rate vs. Adjustable-Rate Mortgage Pros and Cons

Fixed-rate mortgages lock in your rate for the entire life of your loan. Adjustable-rate mortgages lock in your rate for the first few years, then your rate goes up or down periodically.

ARMs typically start with lower rates than fixed-rate mortgages, but ARM rates can go up once your initial introductory period is over. If you plan on moving or refinancing before the rate adjusts, an ARM could be a good deal. But keep in mind that a change in circumstances could prevent you from doing these things, so it’s a good idea to think about whether your budget could handle a higher monthly payment.

Fixed-rate mortgage are a good choice for borrowers who want stability, since your monthly principal and interest payments won’t change throughout the life of the loan (though your mortgage payment could increase if your taxes or insurance go up).

But in exchange for this stability, you’ll take on a higher rate. This might seem like a bad deal right now, but if rates increase further in a few years, you might be glad to have a rate locked in. And if rates trend down, you may be able to refinance to snag a lower rate 

How Does an Adjustable-Rate Mortgage Work?

ARMs start with an introductory period where your rate will remain fixed for a certain period of time. Once that period is up, it will begin to adjust periodically — typically once per year or once every six months.

How much your rate will change depends on the index that the ARM uses and the margin set by the lender. Lenders choose the index that their ARMs use, and this rate can trend up or down depending on current market conditions.

The margin is the amount of interest a lender charges on top of the index. You should shop around with multiple lenders to see which one offers the lowest margin.

ARMs also come with limits on how much they can change and how high they can go. For example, an ARM might be limited to a 2% increase or decrease every time it adjusts, with a maximum rate of 8%.

Read the original article on Business Insider

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