09/28/22 – Caleb Hanson
Recent average interest rate for a 30-year fixed loan according to Macro trends
According to Macrotrends, the average interest rate for a 30-year fixed loan rose 0.74% on average in the last month, from 5.55% to 6.29%. This continues an intense climb that began in February. Here’s how I expect this will affect the real estate market.
For a first-time buyer using a typical Federal Housing Administration (FHA) loan, they just saw their payment for the same-priced home go up by 5.53% in the last month. On a $500,000 purchase, that’s $233 a month. This will create significant downward pressure on home prices because buyers cannot afford to pay the same prices they could a month ago. Therefore, sellers should be more conservative when choosing an asking price based on recent comparable sales. Even though the houses sold in the last few months might be the same, the market circumstances are drastically different.
For a while, I think appraised value for a given home is likely to exceed market value. An appraiser might use comparable sales from up to six months ago according to typical appraisal standards, but six months ago, the average interest rate was 5.1%, which means a buyer’s payment for the same home at the same price today would be 9.09% higher today compared to six months ago. Even if buyers are willing to pay a somewhat higher payment now, it’s unlikely they can afford that big of a jump in the monthly cost, so they will have to offer less than they would have offered six months ago. That means their offer prices now will be lower than the sale prices of the comparable homes sold in the past that the appraisers are using.