Some homebuyers are giving up hope that mortgage rates will fall

The housing market hasn’t shaken off its slump the way some anticipated this spring, as higher-than-expected mortgage rates, high inflation and widespread job insecurity have made many would-be buyers hesitate.

A common refrain from housing analysts and real estate agents is that the situation would be better if the U.S. war in Iran ended. Then oil prices, inflation and yields on bonds would come down, leading to lower mortgage rates and greater consumer confidence.

But without any certainty on that score, how should people eyeing a move make sense of the housing market — and when to wade in?

Analysts say not to count on mortgage rates coming down this year in a significant way.

The average rate on a 30-year fixed-rate mortgage rose above 6.5% last week, according to Freddie Mac. Mortgage News Daily calculated an even higher figure: 6.75%. Across indexes, rates have gone up more than half a point since the start of the Iran war.

“Right now, our internal forecast has rates staying in the 6s [all year],” Zillow chief economist Mischa Fisher said. “It really depends on how long the energy price shock lasts.”

The rate climb may be prompting some people to buy homes now in anticipation of possible further increases, Fisher said. “People are saying: the direction has turned, and I should get on it before they rise higher,” he said.

He said rate fluctuations, though, make far less difference than the fact that home prices have soared since 2019, and incomes haven’t kept up. But that’s improving, he said, as price growth flattens and inflation pushes wages higher.

“Obviously, if you raise gas prices and you raise mortgage rates, it’s not going to help people. But if you’re buying in this market, you’re already suffering through that shock and saying, ‘OK, I still want to own a home,’” Fisher said.

Bob Anderson, 66, is among those who says he’s ready, despite higher mortgage rates and broader financial pressures. He’ll close on a home in a Detroit suburb next month for a little over $200,000.

“I just tell myself: Keep working, keep working harder,” Anderson said. “I’m nervous. I will admit I’m a little stressed.”

He acknowledges that he is already working practically around the clock. Starting at 5 a.m., he stocks shelves at a grocery store. And at night at this time of year, he draws caricatures at after-prom parties. He figures the $350 difference between his rent and his new mortgage amounts to one more good caricature gig a month.

“You’ve got buyers who are really not waiting for perfect conditions,” said Century 21 CEO Mike Miedler, who noted that pending home sales rose 1.4% from March to April and 3.2% year over year, according to the National Association of Realtors. “Most buyers, if they feel secure in their jobs and they’ve planned for this, they’re going to hop in.”

Michael Fratantoni, chief economist for the Mortgage Bankers Association, assessed that buyers may be more sensitive to the fluctuating rate than some experts give them credit for. His organization reports that the number of mortgage applications for home purchases has been decreasing.

“These rates [are] probably enough to cause some people to pause,” he said. “An informed potential homebuyer has a good understanding of where rates have been recently.”

Some homebuyers who had been waiting for better rates are no longer willing to sit on the sidelines.

“I’ve been watching mortgage rates for the past five years. … I’m interested in mortgage rates,” said Ben Bianco, 35. “But buying a house is such a big life decision. I couldn’t imagine if it was based on the interest rate timing.”

Bianco and his wife, Anastasia, paused their house search when they lost their jobs as contractors for USAID in the first weeks of the Trump administration. They started looking with urgency again when their rent spiked this year. They closed on a $625,000, three-bedroom house in Silver Spring, Maryland, this month.

“When it comes down to it, I’ll take whatever rate the lender is giving me,” Bianco said. “When you see your dream house, when you see that perfect backyard that your son is going to play in.”

Some buyers may hope to refinance later, assuming rates will come down at some point while they live there.

Bill Dallas, a longtime mortgage lender who now consults for other companies, advises against waiting to purchase a home even if global events turn around. “Let’s just say God comes down and he solves all these geopolitical issues. Kevin Warsh is in [as the Federal Reserve chair] and he lowers interest rates. What’s going to happen to home prices?”

When buyers have more money to spend, prices will go up, Dallas said. “If you’re a buyer, when should you buy? You should buy when home prices go down, not when they’re going up. Get out there and buy.”