Mortgage Rates Are About to Rise at the Worst Time

Homebuyers have been hoping for months that mortgage rates will come down, but spring might not have the financial savings consumers are looking for.

Instead, experts said rates are set to rise at a time when homebuying tends to be popular nationwide.

"The weather is warmer, there is more daylight, and homes always look better once the greenery returns from winter," Melissa Cohn, regional vice president at William Raveis Mortgage, told Newsweek. "People, especially those with children, like to buy in the spring as they can close when the school year ends and have the summer to get resettled in a new home."

But because inflation grew by 3.2 percent in February compared to the year prior, the Federal Reserve is likely to continue keeping interest rates high in hopes of bringing down inflation to its target of 2 percent.

Mortgage rates are likely to follow this trend as well, which could cause significant problems as a surge of homebuyers look to enter the market.

"It means another uptick in mortgage rates," Realtor.com Chief Economist Danielle Hale said in a recent report. "Mortgage rates are likely to top 7% again for a brief period."

For the week ending March 6, mortgage rates were at 6.88 percent on 30-year fixed-rate loans, and higher home prices amid a national housing shortage are likely to only make the situation worsen for homebuyers.

Hale said the Fed isn't likely to bring down interest rates until September, which would keep mortgage rates high throughout one of the most popular buying seasons, spring.

"It begs the question: Are the Fed's rates high enough to rein inflation in?" Hale said in the report. "I don't really think they're going to raise rates. But I do think that question is now on the table."

According to Chris Reis, a broker and founder of Washington-based PNW Residences, the higher mortgage rates reflect the Fed's uneasiness in response to the latest inflation data. And for the springtime housing market, the impact could be especially severe.

"Spring is a hot market for buyers as sellers typically wait until now to list their homes to avoid the slower winter months," Reis told Newsweek. "This means inventory increases and leads to increased buyer activity. It is also when pricing is set for the trailing months meaning that buyers that act quickly can purchase homes for slightly less as opposed to waiting for the summer months."

Spring has traditionally been the peak real estate market, but Alan Chang, the founder and president of California-based Vested Title & Escrow, said because of low inventory of new listings, buyers should still brace themselves for a competitive bidding market.

"The Fed has one tool in its arsenal to mitigate inflation and that has historically tied itself with the mortgage interest rates that directly impact how much house the homebuyer can afford," Chang told Newsweek. "With inflation continuing its upward course, it seems like the Fed will not be dropping rates in the immediate future."

Reis said that in Seattle, there's likely not going to be a drastic pull in buyer activity because of the region's ongoing housing shortage. And in many other places, buyers have accepted that mortgage rates will likely stay higher.

Reis said many are realizing that "it's in their interest to purchase homes before pricing increases as you marry the purchase price not the rate."

Buyers still hoping to purchase a home this spring should sit down with their lender and strategize on how best to handle the potential increase in mortgage rates, said real estate broker Cody Horvat of The Scott Group.

"Being prepared and knowing what you can afford at different rates will be key as uncertainty remains in the air heading into spring," Horvat told Newsweek, adding that the election year might negate some of the pressure within the market.

"Even if mortgage rates do increase, the increased uncertainty means they will likely face less competition as many buyers will sit on the sidelines and wait to see who will be elected as the next president of the United States," Horvat said. "This could offer a great opportunity for buyers to get a bargain on a home, even with the potential for rates to increase."