Source: The New York Times —
Mila Adams moved to Utah in May with her husband and toddler son to be closer to family, but they didn’t expect to be living with her husband’s parents nearly a half year later.
The couple’s search for a home of their own became a race to stay ahead of the rapid rise in mortgage rates. Each time rates climbed — passing 5, 6 and, recently, 7 percent — the size of the houses they could afford shrank.
“We looked at some new builds and some older homes, but it seems like with every rate hike our buying power goes down, and we have to readjust our budget,” said Ms. Adams, 29, who was looking for a three-bedroom house roomy enough for a family with plans to grow. “The high prices of homes are not going down as quickly as the rates are going up to adjust for that loss of buying power. The prices are just kind of stubborn.”
Once rates crossed 7 percent, the couple’s mortgage pre-approval was rescinded because the costlier loan, combined with her husband’s student debt from dental school, would have pushed their debt level too high.
“We are very conservative with our finances and just want to have room not to be house poor,” Ms. Adams said. “It’s a bit of decision fatigue at this point.”
It’s no surprise that rapid interest rate increases by the Federal Reserve — meant to tamp down inflation and cool an overheated housing market — have pushed up mortgage rates, making it harder for many people to buy homes. Changes in consumer behavior and decisions made by investors on Wall Street are also to blame for higher rates.
Analysts say the average rate on a 30-year fixed mortgage, which recently crossed the 7 percent threshold before retreating slightly on Thursday, could be as much as a full percentage point lower if investors, homeowners and prospective buyers hadn’t been shifting their behavior so sharply in reaction to the Fed’s moves.
“A whole percentage point on your mortgage rate is due to what is going on in mortgage markets,” said Scott Buchta, a mortgage analyst at Brean Capital. “The volatility in the market has been passed through to consumers as well.”
Lenders take into account three different interest rates when deciding what mortgage rate to offer a home buyer.
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