Mortgage Rates: What to Expect This Spring

Prospective homebuyers are watching rates closely, with good reason. A half percentage point increase in mortgage rates increases the typical monthly payment by more than $100. Mortgage rates will be volatile in the weeks ahead, which could disrupt the typical steady spring market surge. Instead, we may see more buyers acting opportunistically, making an offer quickly when they see a dip in rates or if they expect an imminent rate increase.

Forecasting mortgage rates in the best of times is tricky. Now, with economic factors tugging rates in different directions, it has become even more difficult to predict where rates will head this spring.

Mortgage Rates Could Rise

As anxiety around banking stability has subsided, bond prices have fallen and the yield on the 10-year Treasury has risen as investors moved out of the bond market. Mortgage rates typically follow the 10-year Treasury yield.

In addition, the Federal Reserve has made clear its intention to keep interest rates elevated until inflation comes down further, a fact that should also lead to higher mortgage rates.

Higher mortgage rates will continue to put downward pressure on home price growth. In some local markets, higher rates will lead to year-over-year price declines. More prospective homebuyers will also be priced out of the market. At an interest rate of 7%, for example, a homebuyer would need an income of nearly $115,000 to qualify for a mortgage to purchase the median-priced home. At a 4% rate, that household would only need about $96,000 in income.

...Or Mortgage Rates Could Fall

Other economic indicators point to a possibility of mortgage rates coming down. The spread between the 30-year fixed rate mortgage rate and the 10-year Treasury yield is still very wide by historic standards. If that gap were to narrow, mortgage rates could decline.

Furthermore, sinking consumer confidence and growing recession fears could cause investors to reverse course and head back into the bond market, which could also lead to a decline in mortgage rates.

Declining mortgage rates ease rising monthly payments and income requirements, though lower rates could start to reverse the slowdown in price growth.

Spring Outlook: What Does It Mean for Buyers and Sellers?

Mortgage rates will be difficult to predict this spring. Buyers should be sure to comparison shop for a home loan, as greater volatility has also led to wider variation in rates and terms across lenders. The biggest challenge in the housing market this spring will be the persistently low inventory in the market. Buyers in most places should expect competition, which makes it very important for them to research their financing options before they make an offer.

For sellers, well-priced homes, prepared for sale, will attract offers this spring. Stretching on list price may result in homes sitting on the market longer and requiring sellers to cut their asking price.

With longer days, warmer weather, and the approaching end of the school year, the spring tends to bring out both buyers and sellers. While there is more uncertainty in the lead-up to this year’s spring market, there is still a lot of demand in the market.
 

Download this infographic to view the impact of mortgage rates on borrowers:
 

 
Stay informed about housing market conditions with Bright’s housing market reports and get a preview of future buyer activity by tracking the Bright MLS T3 Home Demand Index for the Philadelphia, Baltimore, and Washington, D.C. regions.

 

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Dr. Lisa Sturtevant serves Bright MLS as the nation’s only MLS-focused economist. She leads research, reporting and insights from Bright’s comprehensive array of real estate data. In 2022, Bright’s over 100,000 subscribers facilitated $121B in real estate transactions through its system stretching across 6 states and the District of Columbia.